How Do Companies Raise Capital in India

The choice between debt and equity as source of capital is based on the regulatory as well as financial considerations. This paper specifically examines whether factors such corporate tax rates, introduction of an insolvency and bankruptcy regime and financial stress influence the capital mix. The results suggest a significant deleverage post-IBC and a preference for debt during periods of high corporate tax rates. An interesting finding is that the companies under greater financial stress prefer debt and in fact companies that issues corporate debt instruments exhibit higher financial stress.