Relationship Between Financial Structure and Productivity of Selected Indian Firms

Abstract  
 This present study is concerned with relationship between financial structure and productivity of selected Indian steel firms. Traditionally financial structure has been seen as a purely financial problem without any reference to production theory. In as much as all the firms are responsible for economic activity which involves production of goods and services, it should be obvious that there would be some relationship between production theory and finance theory. While firms needs to be financially viable for continuing production, it is equally true that economic activity, production and real variables, including productivity, would contribute to this financial viability. For a continued existence and growth, firms have to undertake decisions in relation to financing of growth.
 

References

1. Abbott, M. and Wu, S., (2002). ‘Total Factor Productivity and Efficiency of Australian Airports’ The Australian
   Economic Review, 35(3), pp. 244-60. 

2. Agarwal, N.P., (1976). ‘A Study of Capital Structure in Aluminium Industry in India’, Indian Journal of Commerce, 29, pp.75-82. 

3. Aghion, P. and Howitt, P., (1992). ‘A Model of Growth through Creative Destruction’ Econometrics, 60, pp.323-351. 

4. Aghion, P., et al., (2004). ‘Technology and Financial Structure: Are Innovative Firms Different?’ Journal diffusion of technology, best practices in technology etc. that could then be linked to long term finance.

5. Although all of these factors are given and are found in certain firms but finance theory has never recognized such synergies. 

6. One lesson learned is that the emphasis on cost of capital in financing decision is over emphasized, by which the integration of finance with productivity, efficiency and growth is less understood. 

7.  The relationship between determinants of financial structure and debt to equity ratio is not straight forward. From our analysis it is apparent that the same determinants could behave differently by either increasing debt or decreasing equity. Similarly, the same determinants could have different implications in different industries.