Corporate Ownership Structure and Its Effect on Capital Structure: Evidence from BSE Listed Manufacturing Companies in India

The study aims to examine the relationship between corporate ownership structure and capital structure of BSE listed manufacturing firms in India. The study has included the sample of 357 companies which covers 16 major sectors during the period of 2006–2015. Considering the dynamic panel nature of the data relating to the capital structure and the ownership structure variables. The analysis undertakes a novel approach of examining the determinants both single equation and reduced equation models. In order to determine the most appropriate model, based on the F test, the Breusch Pagan LM test and finally the Hausman Test is conducted. The Hausman test result has been estimated by the fixed effect model is better than the other two models such as pooled OLS and random effect estimation. Based on the fixed effects results, size, risk and profitability have a highly significant relationship with leverage. Meanwhile, the growth opportunities and tangibility represent insignificant values. The study found that the explanatory variables of the promoters’ ownership and the institutional ownership have a negative impact on leverage, while the corporate ownership has a positive influence on the capital structure decision. The individual or public ownership has a negative and significantly related to the capital structure, whereas the effect of the foreign ownership inversely related to the firm’s leverage.