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Substitution between Debt and Trade Credit in the Capital Structure Decision of Indian Firms

Author

Listed:
  • Sina Ehsani
  • Lalatendu Misra

    (UTSA)

Abstract

We examine leverage choice issues of private vs. public, and group vs. non-group Indian firms during the preceding two decades. We include trade credit in measuring leverage as it is an extensively used form of debt financing in India. Indian firms employ high levels of leverage. Unlisted firm exhibit higher leverage, but such firms have moderated their use of leverage over the sample period. The difference in leverage across listed and unlisted firms is significant after controlling for the well-known determinants of capital structure. Access to capital via listing or group membership is thus a systematic determinant of leverage in India with listing status being more important than group membership. Listed firms exhibit higher variation in their leverage consistent with valuemaximization; they use more (less) debt when the cost of equity is high (low).

Suggested Citation

  • Sina Ehsani & Lalatendu Misra, 2013. "Substitution between Debt and Trade Credit in the Capital Structure Decision of Indian Firms," Working Papers 0223fin, College of Business, University of Texas at San Antonio.
    • Handle: RePEc:tsa:wpaper:0223fin
    as

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    File URL: http://interim.business.utsa.edu/wps/fin/0053FIN-803-2013.pdf
    File Function: Full text Classification- G31, G32, G38
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    References listed on IDEAS

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