Test of Descriptive Power of Capital Structure Theories in Auto Ancillary Industry in India

Abstract

More than the past fifty years after the contribution by Modigliani and Miller's to the literature of capital structure, many economists in the field of finance have been intensely contributed to this concept. Various principles such as Agency Theory, Principle of Pecking Order, Signaling Theory and Theory of Trade off have been invented by various authors in the concept of capital structure. This study undertaken to know to the extent the theories of capital structure are applied in Indian industries especially in Auto Ancillary sector. The changes in today’s financial markets after liberalization have certainly made an impact on the composition of capital of corporate units. Hence the present research concentrates on post liberalization period to observe the descriptive power of the principles of capital structure.