The Double Edged Sword Debt Vis a Vis the Single Edged Sword Equity Perspectives and Prospects for Indian Companies

Abstract

India has witnessed a shift from Agriculture oriented country to an industry dominated country in the recent past. Moreover it has gone through a remarkable growth of corporate sector as well. Companies require capital to run their business smoothly. That capital may be obtained from Debt or Equity. Proper mix of both of them is said to be Optimum Capital Structure. There are certain theories of Capital structure used in the Indian Corporate sector which shows the determinants of capital structure, its impact on Cost of Capital, EPS and MPS. But these theories prevailing in the corporate sector are mostly suitable in the developed country. Moreover these theories have some redundant assumptions as well. newlineSo this study is more focused for the suitability of developing countries like India where situation is different in the corporate sector as far as Capital Structure of the firms is concerned. For achieving the objectives of this study, a sample of companies categorized as Conventional Firms and Contemporary (Non-Conventional) firms that are selected from the BSE 500 index. Conventional Industries are defined as those industries which were operating prior to economic liberalization of Indian economy in 1991 and Contemporary Industries are defined as established after liberalization and globalization of Indian economy in 1991. For the purpose of this study, a sample of 133 companies (93 from Conventional and 40 from Contemporary Industries) has been selected. This research is Descriptive type of research. newlineConventional Industries include Iron and Steel, Drug and Pharmaceutical, Fertilizer and Chemical industry that have been operating pre economic reforms of 1991. Contemporary Industries include Media and Entertainment, Computer and IT, Telecommunication and Transport Industry. This study is based on secondary data only. The necessary data is procured from annual Reports of respective Companies, Official Websites of BSE, NSE and database of the Prowess developed by Centre for Monitoring Indian Economy (CMIE). The