Journal of Management Research

The present study analyzes the important determinants of capital structure of Indian firms with emphasis on the impact of recession. The panel estimations using the fixed effect model have been used on National Stock Exchange 500 firms over a period from 2001 to 2016 to find out the relationship between leverage (Long Term Debt, Short Term Debt, and Total Debt) and 14 explanatory variables. The period of recession has been divided into two phases, i.e., pre-recession and post-recession phases. The empirical findings suggest that profitability, tangibility, liquidity, and debt service capacity seem to be significant determinants of capital structure for both the pre- and post-recession periods. Other variables such as size, cost of debt and financial distress indicate the change in firms’ preference for the long-term and short-term debt post-recession. Growth, tax rate, uniqueness, dividend payout ratio, and age indicate significant results in the first phase, but in the second phase, the results are non-significant. These findings confirm that Indian firms do not strictly follow any particular theory; rather, both the pecking order and trade-off theories are merged.