Medium Sized Firms in India and Their Dynamic Adjustment Towards Their Target Debt Equity Structure

There have been very few studies done over the world to determine the profitability of firms given the firms expected financial leverage or debt equity structure. Studies from all over the world have identified various factors that are vital in influencing the target debt equity structure of firms. However, different factors vary in terms of their influence on determining the optimal debt equity structure of firms for different countries. This paper researches into various firm specific factors for medium sized companies in India and makes an in-depth analysis to establish the relationship of their impact on medium sized firms which move towards the target debt equity structure through a dynamic process. The medium sized companies have been sampled keeping in mind the market capitalization of these firms in India. This research work tries to explain those factors which have an influence on achieving the optimum debt equity structure for medium sized firms and tries to study how these firms could use their resources in consolidating upon these firm specific factors for the overall profitability of the firms. This line of research has been rarely tried in the Indian context and it promises an innovative insight into scientific research on determining a firm’s profitability. This research work is based on a very unique analytical tool namely the General Method of Moments (GMM) which is a Nobel award winning analytical tool first proposed by its founder Lars Peter Hansen in 1982.This research work is purely quantitative and empirical in nature and is academically relevant for academicians and industry equally.