Capital Budgeting Decisions of Private Equity: Evidence from India

Abstract

An efficient allocation of capital is the most important finance function in the modern times. It involves decisions to commit the firm’s funds to the long term assets. Capital Budgeting or investment decisions are of considerable importance to firm, since they tend to determine the value by influencing its growth, profitability and risk. This paper studies the determinants of capital structure choice of selected Indian Industries. Our main objective was to investigate whether and to what extend the main capital structure theories can explain the capital structure choice of Indian firms. In this paper we report results from executives of companies of different industries. We document interesting insights by analyzing how theoretical corporate finance concepts are applied by the experts in practice. We have applied multiple regression models on the selected industries by using survey data for the period 2005-2011. The results of the study indicate that the determinants of the capital structure of Industries in India are agency cost, assets structure, non-dept. tax shield and size. The coefficients of these variables are significant at one percent or five percent level.