Changing Dynamics of Leverage Determinants : A Comprehensive Study of Firms Listed in India

Authors

  •   Amit Kumar Singh Professor, Department of Commerce, Faculty of Commerce and Business, Delhi School of Economics, University of Delhi, Delhi – 110 007
  •   Preeti Bansal Assistant Professor (Corresponding Author), Department of Management Studies, Ramanujan College, CR Park Main Road, University of Delhi, Block H, Kalkaji, New Delhi - 110 019
  •   K. Latha Professor, Department of Commerce, Ramanujan College, CR Park Main Road, University of Delhi, Block H, Kalkaji, New Delhi - 110 019

DOI:

https://doi.org/10.17010/ijf/2025/v19i2/174768

Keywords:

capital structure

, leverage, determinants, hierarchical linear model, India.

JEL Classification Codes

, G3, G30, G32

Paper Submission Date

, September 4, 2024, Paper sent back for Revision, January 20, 2025, Paper Acceptance Date, January 30, Paper Published Online, February 15, 2025

Abstract

Purpose : This study offered a unique perspective on leverage determinants, examining both the direct influences of firm-level and the direct and indirect influences of industry-level determinants.

Methodology : By analyzing annual data of all BSE-listed non-financial 3,620 firms from 1992 to 2023 (31 years), resulting in 35,510 firm-year observations, and using the hierarchical linear model (a statistical method that allows for the analysis of data with a nested structure), we were able to assess multi-level influences of leverage determinants. The study’s comprehensiveness regarding firm-year observations and variables effectively addressed the problem of model misspecification and identified the most significant leverage determinants.

Findings : Our results revealed significant firm and industry-level leverage determinants, providing evidence that industry factors strongly and indirectly influenced capital structure decision-making, potentially altering the influence of firm-level factors on leverage.

Practical Implications : We demonstrated that the relationship between capital structure and its determinants is hierarchical and not straightforward. These findings have important implications for financial decision-making in Indian firms.

Originality : This study questioned the dominant perspective in the existing literature that internal firm factors are primary determinants of capital structure.

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Published

2025-02-15

How to Cite

Singh, A. K., Bansal, P., & Latha, K. (2025). Changing Dynamics of Leverage Determinants : A Comprehensive Study of Firms Listed in India. Indian Journal of Finance, 19(2), 8–26. https://doi.org/10.17010/ijf/2025/v19i2/174768

Issue

Volume 19, Issue 2, February 2025

Section

Articles
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