Nexus Between Debt-Equity Choice And Market Value Of The Firm: A Panel Data Analysis On Indian Automobile And Its Ancillaries Firms

Abstract

This study attempts to provide insight into the effect of capital structure decisions on the listed Indian automobile and automobile ancillaries’ firms’ market value. The analysis uses secondary data collected for 118 automobile and ancillaries firms listed on the Bombay Stock Exchange (BSE) for the year from 2004 to 2020. The Dynamic panel data regression analysis was employed to study the impact of capital structure on firm’s value. The outcomes of the research indicate that in an emerging sector like the Indian automobile sector, equity capital as a component of capital structure is relevant to the value of a firm, and Long-term-debt was also found to be the major determinant of a firm’s value. The findings of this study help the corporate financial decision-makers are advised to design the optimal capital structure that maximizes the firm value by reducing the overall cost of capital.