I have struggled hard to work on my research topic due to lack of focus, time and motivation. My attempt below is to document the three key motivators to continue to pursue my research topic on capital structure theories:
1. Study of capital structure is a complex due to involvement of multitude of factors that vary within firms over time, across industry and across countries. Majority studies have taken large sample of firms across industries to ascertain the determinants of capital structure and its adjustments. Hence, its imperative small subsets of sample firms are studied to better understand capital structure theories. This is of immense significance in context of Indian firms.
2. Existing studies convincingly argue that careful measurement of key variables including the dependent variable (debt/equity ratio). Studies have tried to develop statistical models that attempt to explain the capital structure variation but each is a partial fix and still leaves much of capital structure variation unexplained. (see Graham, John R. and Leary , Mark T., A Review of Empirical Capital Structure Research and Directions for the Future (April 7, 2011). Annual Review of Financial Economics, Vol. 3, 2011.) Hence, need for using non-parametric methods on primary data (collected through) questionnaire is expected to help identify qualitative factors that influence the choice and variation in capital structures. The proxies for qualitative factors in the parametric models may have failed to capture their effects completely.
3. Despite years of research, capital structure remains a “puzzle” (see Myers, Stewart C., Capital Structure Puzzle (July 1984)). NBER Working Paper No. w1393.) Is capital structure of a firm an outcome of its business decisions or is it a determinant in business decisions? We have trade-off and pecking order theories and several decades of empirical research attempting to validate the capital structure theories but the “puzzle” provides enough scope to validate and study it further.