Do intellectual capital efficiency and institutional quality influence a firm’s capital structure? Evidence from India

Abstract

Purpose – This research explores the influence of intellectual capital (IC) efficiency (ICE) and institutional quality (IQ) on a firm’s capital structure (CS) in Indian firms. Design/methodology/approach – The analysis was conducted on a sample of Indian companies from 2015 to 2019. Data were collected from the S&P database, and regression and additional analyses were performed to achieve the objectives of this research. Findings – The findings show a significant positive effect of ICE on a firm’s CS from debt (CSD) and an insignificant positive effect of IQ on CSD and CS from equity (CSE). The findings also indicate that human-capital efficiency (HCE) and capital-employed efficiency (CEE) are the main IC sub-dimensions influencing a firm’s CS, compared to the structural-capital efficiency (SCE) dimension. Practical implications – The results of this study have several practical implications, as they examine the influence of ICE and IQ on CS as potential determinants, which could help business leaders adopt optimal CS strategies. Originality/value – The results of this study offer several novel contributions to the existing literature on CS by examining unexplored factors, such as ICE as a knowledge management strategy, ICE sub-dimensions, and IQ in the context of CS.