Does Capital Structure Depend on Group Affiliation? an Analysis of Indian Corporate Firms

This paper investigates the effect of group-affiliation on the Indian corporate firms capital structure based on data of 875 Indian non-financial firms listed either in the Bombay Stock Exchange or in the National Stock Exchange, for the period 2002-2010. Among the three alternative estimation methodologies applied viz., (i) pooled OLS, (ii) generalized method of moments (GMM)and (iii) ‘lagged’ time-series analysis, the GMM appears to be the robust one. It is found that the group-affiliated firms have higher level of leverage than the stand-alone firms which can be explained by a combination of factors such as the reduction of the agency cost of debt in case of the group-affiliated Indian firms, better access to external finance in case of the Indian business groups due to better reputation and creation of internal capital markets by the business groups.