Does debt heterogeneity impact firm value? Evidence from an emerging context

Abstract

Purpose

The present paper attempts to explain the impact of debt diversification and various debt financing sources on firm value. The paper also aims to address the long-run causality of various factors affecting firm value.

Design/methodology/approach

The study employs a dynamic panel data model for a sample of 233 listed firms from 2010 to 2019. Two-step generalized method of moments (GMM) is devised to study the impact of firm-specific factors on firm value.

Findings

The study establishes a negative impact of debt diversification on firm value. Further, the results also signal how the choice of debt instruments has a heterogeneous effect on firm value. Non-bank debt leads to a discount in firm value, while bank debt has no effect on firm value. The long-run determinants of firm value are debt ratio, tangibility and liquidity.

Research limitations/implications

The findings of the study would aid the mangers in making informed decisions regarding the debt financing structure. Too much reliance on non-bank debt instruments leads to a negative impact on firm value. Therefore careful evaluation is necessary before accessing multiple debt sources.

Originality/value

Debt heterogeneity is globally established; however, its presence in the Indian context has not been validated extensively. The study not only validates the existence of debt diversification but also investigates how individual debt instruments affect firm value that is yet to be examined in the Indian context.

Citation

Tripathy, A. and Uzma, S.H. (2022), "Does debt heterogeneity impact firm value? Evidence from an emerging context", South Asian Journal of Business Studies, Vol. 11 No. 4, pp. 471-488. https://doi.org/10.1108/SAJBS-06-2020-0179