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- Title
Debt in the Indian Corporate Sector: Its effects on firm strategy and performance.
- Authors
Majumdar, Sumit K.; Sen, Kunal
- Abstract
Indian firms are heavily leveraged. Unlike in the West, where debt ratios that are more than half of nominal equity capital values are considered to be high, in India high debt to equity ratios is the norm. In this paper, we study the consequences of the important role that debt plays in the capital structure of Indian corporate firms. We study the effects of debt structure on firm's strategic behaviour, such as diversification, advertising and out-sourcing. We find that firms which rely on arm's-length debt have better performance and are more likely to engage in advertising and diversification than firms which rely on borrowing from institutional lenders such as term-lending institutions. We argue that the public ownership of many institutional lenders may explain why they have not been able to monitor firms as effectively as arm'slength debt holders which are mostly in the private sector.
- Subjects
INDIA; PRIVATE sector; DEBT management; BUSINESS planning; BUSINESS conditions
- Publication
Decision (0304-0941), 2010, Vol 37, Issue 3, p30
- ISSN
0304-0941
- Publication type
Article