A study on the determinants of capital structure of SME’S manufacturing sector organizations in India

Anirban Ghatak


Capital structure refers to the mix of debt and equity used by a firm in financing its assets. The capital structure decision is one of the most important decisions made by financial management. Since the foundational work of Modigliani and Miller (1958), a number of authors extended their capital structure irrelevancy theory. Despite some significant contributions to the general perception of the various intricacies about corporate capital structure, research produced so far did not provide yet a sound basis for establishing, in a decisive fashion, the empirical validity of the different theoretical models. It appears that (1) we are still lacking a comprehensive theory to explain how firms decide about their strategic financing; and (2) yet we cannot unambiguously specify the relation between capital structure choice and firm value. Given the economic significance of capital structure decisions, an understanding of the relative importance of firm- versus country-specific effects in determining those decisions is an extremely valuable area of research. This research is conducted with the objective to obtain the main determinants of capital structure of SME’S and to build a model to find out the level of leverage in SME’S.


Key Words: debt and equity, Modigliani and Miller, SME’S


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ISSN : 2251-1547