Growth effects of stock market on corporate finance: An exploratory analysis of Indian manufacturing sector

To make a country economically strong and to attract investors from all over the world, stock market has to play an important role. A strong, stable and transparent stock market is essential for a strong economy where it provides an efficient delivery mechanism for savings mobilization and allocation, risk and liquidity management and corporate governance. The study employing time series industry level data investigated the effect of financial market development particularly stock market development, firm specific factors and macro economic factors on the capital structure of Indian industries for the post reform period. The sample of industries in the study are heterogeneous in nature, hence the results indicate a diverse relationship between the debt-equity ratios and the firm specific, macro economic and stock market development indicators. The results reveal that out of fifteen industries nine industries have negative coefficient values for stock market development indicators, implying an increase in equity finance with the development of stock market, remaining six industries have positive coefficient values indicating complementarities between debt and equity finance. Contrary to earlier empirical results, the study finds that along with larger industries, few smaller industries with lesser share in total gross value added have also affected by stock market development.