Resource Dependency and Capital Structure: A Study of Manufacturing Firms in India

Abstract

This work takes a deviation from the earlier studies in defining resource dependency at firm level from the energy use patterns. We arrive at the sample of manufacturing firms in the Indian economy based on the strict rule of energy reporting. The empirical results confirm that capital structure in terms of book leverage is different between the resource based and non-resource based firms. The results of this study confirm that firm size, affiliation and expenditure on environmental services are major determinants of book leverage. Similarly, expenditure on environmental services and energy dependency on coal explain the inter-firm differences in market leverage. The resource base firms’ expenditure on environmental services are equally important as firm size or firm affiliations in explaining capital structure.

Keywords Resource based firms, Capital structure, Firm characteristics, Manufacturing firms, India.