Abstract
The article tries to reconcile theoretical predictions of the two most important capital structure theories with evidences for corporate financing in India. We identify that while the pattern of leverage supports the prediction of pecking order hypotheses strongly, the key arguments of the theory are missing. We also found a significant explanation for incremental changes in debt ratios caused by mechanical stock price movement as compared to the changes caused by the overall issuance activities of firms. Firms do not seem to readjust their debt ratios to counter the drift caused by these stock-related movements in debt ratios. JEL Classification: G32, G20, H25, H62, E62
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