Journal of Management Research

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Impact of Macroeconomic Condition on Financial Leverage


Affiliations
1 TA Pai Management Institute, Manipal-576104 (Karnataka)
2 Department of Humanities and Social Sciences Vinod Gupta School of Management, IIT, Kharagpur-721 302
     

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The objective of this paper is to investigate the role of economic condition on determination of financial leverage and the adjustment speed to target leverage for the Indian manufacturing companies. Using the pooled data and the generalized method of moments estimation techniques, we find the evidence that for the Indian firms, macroeconomic condition plays an important role for determination of financial leverage, all the firms do have the target leverage ratio across macroeconomic conditions and the adjustment speed to target leverage has been pro-cyclical. We also find that financing behavior of the companies is different in good and bad economic conditions for both book and market leverage ratios.

Keywords

Financial Leverage, Macroeconomic Condition, Adjustment Speed, Pooled Data, Generalized Method of Moments, Target Leverage Ratio
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  • Impact of Macroeconomic Condition on Financial Leverage

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Authors

Sulagna Mukherjee
TA Pai Management Institute, Manipal-576104 (Karnataka)
Jitendra Mahakud
Department of Humanities and Social Sciences Vinod Gupta School of Management, IIT, Kharagpur-721 302

Abstract


The objective of this paper is to investigate the role of economic condition on determination of financial leverage and the adjustment speed to target leverage for the Indian manufacturing companies. Using the pooled data and the generalized method of moments estimation techniques, we find the evidence that for the Indian firms, macroeconomic condition plays an important role for determination of financial leverage, all the firms do have the target leverage ratio across macroeconomic conditions and the adjustment speed to target leverage has been pro-cyclical. We also find that financing behavior of the companies is different in good and bad economic conditions for both book and market leverage ratios.

Keywords


Financial Leverage, Macroeconomic Condition, Adjustment Speed, Pooled Data, Generalized Method of Moments, Target Leverage Ratio

References