Effect of Capital Structure on Shareholder Value: Evidence from Panel ARDL Approach

Abstract

This study examines the effect of capital structure on the shareholders’ value in Indian pharmaceutical industry collecting data over a period from 2001 to 2020. Further, the study also investigates the long-run and short-run relationship between capital structure and shareholder value. This study employs pooled, fixed, random effect regression models and panel autoregressive distributed lag analysis. The shareholder value of Indian firms is measured by earnings per share (EPS) and market value added (MVA) while the debt-equity ratio, interest coverage ratio, and total liabilities to total assets are the proxy variables for capital structure. The study reveals that capital structure influences shareholder value significantly. The findings also explored the existence of a long-run relationship between capital structure and shareholder value.