PRODUCT MARKET COMPETITION AND CAPITAL STRUCTURE OF FIRMS: THE INDIAN EVIDENCE

The present study intends to analyze empirically to what extent product market competition that a firm faces in a developing country like India, affects its capital structure decisions. The product market behaviour is captured from three different angles viz. structure-conduct–performance. We examine the impact of market structure, conduct and performance on both the short-term and long-term debt ratios separately, after controlling for the other determinants of capital structure. A new feature of the study is to underscore the role of economic liberalization in this respect. The method used is panel regression analysis. It is observed that the structure and conduct is significant in influencing only the short-term debt ratio whereas performance is consistently having a negative impact on both short-term and long-term debt ratios. The structural break dummy is also significant irrespective of the maturity structure of debt