Determinants of Capital Structure of Listed Construction and Infrastructure Companies in India-A Hierarchical Modeling Approach

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Dr. Amit Hedau


The capital structure of any firm is at the center of the corporate finance decisions. The corporate firms are attempting to achieve trade-off between the risk and return with various sources of finances raised in different proportions. The capital structure of the firm is influenced by firm level determinants as well as country level macroeconomic variables. The present study is to explore the determinants of capital structure of the listed construction and infrastructure companies in Indian stock exchange. Hierarchical regression modelling is used to decompose the leverage ratio of the sample firms with three levels of independent variables.  In the first level, macroeconomic variables such as GDP growth rate, stock market development, inflation and prime lending rate are considered. Next, the firm level determinants of capital structure which are bifurcated into two categories as income statement based variables and balance sheet based variables. The regression model is able to predict ~37 per cent change in the leverage with seven statistically significant variables. The findings of the paper are an extension of knowledge to understand the determinants of capital structure of construction and infrastructure sector operating in India.

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