Resource Utilization, Ownership Concentration and Capital Structure Decisions: An Empirical Study of Indian Firms

Abstract

This empirical investigation delves into the intricate dynamics surrounding resource utilization, ownership concentration, and capital structure decisions within Indian firms. Drawing on the annual financial data of 1,102 non-financial firms that were continuously listed on the Bombay Stock Exchange from the year ending 31^st March, 2007 to 31^st March, 2019 encompassing 14,326 firm-year observations in a panel structure, our study employs dynamic panel data techniques for data analysis. We explore how resource utilization capability, cash generation capability and ownership concentration affect the capital structure decisions of the firms. This paper is perhaps the first paper to introduce the un-observable firm characteristic resource utilization capability and cash generation capability in the empirical models. To proxy these characteristics indexes of observed accounting ratios were created using Principal Component Analysis. Profitability, Industry Leverage, Size, Growth opportunity, Net working capital to total assets ratio, assets tangibility and financial distress were used as control variables.