Capital Structure and Product Market Determinants: Empirical Evidence from the Indian Automobile Industry

Himanshu Joshi

Fore School of Management, B 18 Qutab Institutional Area, New Delhi 110016, India



This paper provides insights into the way in which the capital structure is determined by product market determinants, research and development activity and profitability. This paper is an attempt to test relevance of empirical evidences found in matured markets to the Indian market condition. Automobile industry is taken up for the study because of its oligopoly nature and easy availability of product prices. Some of the results are very different from the similar studies conducted in the advanced economies. It is found that the firms in the same industry can have different capital structures and there is a negative correlation between the profitability and capital structure of the companies. Interestingly, no correlation is found between R&D expenses and capital structure of the company. It was also concluded that no extra market power is attained because of high leverage.

Keywords: Capital Structure, Product Market, Market Structure, Profitability, Market Power, Capital Expenditure