Public Choice

, Volume 98, Issue 3–4, pp 287–305 | Cite as

Capital structure and performance: Evidence from a transition economy on an aspect of corporate governance

  • Sumit K. Majumdar
  • Pradeep Chhibber
Article

Abstract

This paper examines the relationship between the levels of debt in the capital structure and performance for a sample of Indian firms. Existing theory posits a positive relationship; however, analysis of the data reveals the relationship for Indian firms to be significantly negative. The structure of capital markets in India, where both short-term and long-term lending institutions are government-owned, is hypothesized to account for the finding of this relationship, and it asserted that corporate governance mechanisms which work in the West will not work in the Indian context unless the supply of loan capital is privatized.

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Copyright information

© Kluwer Academic Publishers 1999

Authors and Affiliations

  • Sumit K. Majumdar
    • 1
  • Pradeep Chhibber
    • 2
  1. 1.The Management School, Imperial College of Science, Technology and MedicineLondonU.K
  2. 2.Department of Political ScienceUniversity of MichiganAnn ArborU.S.A

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