TITLE:
Impact of Capital Structure on Firm Value: Evidence from Indian Hospitality Industry
AUTHORS:
Divya Aggarwal, Purna Chandra Padhan
KEYWORDS:
Altman Z Score, Firm Value, Leverage, Trade off Theory
JOURNAL NAME:
Theoretical Economics Letters,
Vol.7 No.4,
June
22,
2017
ABSTRACT: This study examines the effect of capital structure
and firm quality on firm value of selected BSE listed Indian hospitality firms
over a time frame of 2001-15. Variables including firm quality measured through
Altman Z score, leverage, size, profitability, tangibility, growth, liquidity
along with macro variables of growth in gross domestic product and inflation
are taken into consideration for examining their impact on firm value. An
empirical study has been carried out through panel data techniques by applying
pooled OLS, fixed effects and random effects models. The findings of the study
reveal a significant relationship of firm value with firm quality, leverage,
liquidity, size and economic growth. The study shows that Modigliani miller
theorem of capital structure irrelevance does not hold for Indian hospitality
sector. It is of practical significance for hotel owners to reassess their
capital structure to improve firm quality and firm’s market performance.