The question of corporate capital structure has long attracted the interest of researchers and institutions in developed countries and there are clear links between these issues and debates over the kinds of financial markets and institutions that are supportive for long-term growth of corporate sector. The main purpose of the present paper is to analyze the capital structure of the Indian corporate sector. It also examines whether any shift has taken place in the financing pattern of the Indian corporate sector after the implementation of financial liberalization in early 1990s. Finally, the study discusses all those different factors that determine the debt-equity choice of Indian private sector firms. While addressing the abovementioned issues, help of the method of ordinary least square has been taken, to empirically analyze the given objective. The Indian context presented a totally different result, as compared to the findings of literature in the developed countries, on capital structure.

The subject of the financial structure or financial leverage or gearing has both micro- and macro significance. Question of corporate capital structure has long attracted the interest of researchers and institutions in developed countries and there are clear links between these issues and debate over the kind of financial markets and institutions that are supportive for long-term growth of corporate sector. Normally studies on the pattern of financing or capital structure have been concentrated upon in the developed countries such as the USA, the UK and Germany. From the existing literatures we found that studies done by Modigliani and Miller (1958 and 1963), Angelo and Masulis (1980), Mayer (1984), Barton and Gordon (1988) and Barclay and Smith (1995) examine the theory of capital structure for the corporations in the US, the UK, France and Germany and the like, the primarily developed countries. Their findings state that the large firms in developed countries are financially sound and have matured capital market through which they can raise the funds by issuing equity. Firms in developed countries also prefer debt financing to avail the interest redemption. However for a country like ours, the case is just reverse. In fact, a very few empirical works have been carried out for developing countries, on the pattern of financing, in recent past. Therefore before adopting capital structure theories as followed for the developed countries, it requires a large number of empirical tests to examine, whether the well-based theories of capital structure can support the financial behavior of firms in the Less Developed Countries (LDC). In this regard the present study is an independent attempt to test the validity of accepting the theory of capital structure for the large Indian firms.