The purpose of this empirical study is to explore the factors which influence capital structure decision of the firms in the context of emerging market. Particularly, this study examines the impact of firms’ characteristics, on the capital structure of Indian food & agro product firms listed in NSE (National Stock Exchange) during the period 2007–2011, using panel data. Here firms'characteristics such as profitability, size, growth, tangibility, non-debt tax shields, liquidity, were used as independent variables, while leverage ratios, such as total debt ratio, long term debt ratio and short term debt ratio were the dependent variables. In order to find differences, if any, exists among the firms'life cycle stages, the sample firms are split into three, based on their age - old firms, middle firms and young firms. Fixed and random effect regression models are used to find the effect here. The results reveal that factors such as profitability, tangibility, non debt tax shield and liquidity have significant influences on at least one of the measures of leverage chosen by firms in the Indian context. Results of this study validate the prediction of the tradeoff model along with the pecking order theory and agency model of capital structure seems to provide partial explanations.
