Capital Structure Theories and its Practice, A study with reference to select NSE listed public sectors banks, India

ArXiv ID: 2307.14049 “View on arXiv”

Authors: Unknown

Abstract

Among the various factors affecting the firms positioning and performance in modern day markets, capital structure of the firm has its own way of expressing itself as a crucial one. With the rapid changes in technology, firms are being pushed onto a paradigm that is burdening the capital management process. Hence the study of capital structure changes gives the investors an insight into firm’s behavior and intrinsic goals. These changes will vary for firms in different sectors. This work considers the banking sector, which has a unique capital structure for the given regulations of its operations in India. The capital structure behavioral changes in a few public sector banks are studied in this paper. A theoretical framework has been developed from the popular capital structure theories and hypotheses are derived from them accordingly. The main idea is to validate different theories with real time performance of the select banks from 2011 to 2022. Using statistical techniques like regression and correlation, tested hypotheses have resulted in establishing the relation between debt component and financial performance variables of the select banks which are helping in understanding the theories in practice.

Keywords: Capital Structure, Banking Sector, Regression Analysis, Financial Performance, Debt Component, Equities

Complexity vs Empirical Score

  • Math Complexity: 1.5/10
  • Empirical Rigor: 2.5/10
  • Quadrant: Philosophers
  • Why: The paper relies on established capital structure theories (Net Income, NOI, Traditional, MM, etc.) with only basic descriptive statistics and regression, lacking advanced mathematical derivations or backtesting. The empirical analysis uses standard financial ratios and regression on historical bank data, but does not describe implementation details or robust backtesting protocols.
  flowchart TD
    A["Research Goal: Validate Capital Structure Theories<br>with Banking Sector Performance in India"] --> B["Methodology: Literature Review & Hypothesis Development"]
    B --> C["Data Input: NSE Public Sector Banks (2011-2022)<br>Key Variables: Debt Component, Financial Performance"]
    C --> D["Computational Process: Regression & Correlation Analysis"]
    D --> E["Outcome: Statistical Validation of Theories<br>Debt Component significantly impacts Financial Performance"]
    E --> F["Conclusion: Insights into Capital Structure Behavior<br>in Regulated Banking Sector"]