Search results

1 – 1 of 1
Per page
102050
Citations:
Loading...
Available. Open Access. Open Access
Article
Publication date: 5 July 2021

Koustav Roy and Kalpataru Bandopadhyay

The objective of the paper is to investigate the relationship between financial risk and the value of the company. In this context, the study is to revisit the trade-off theory of…

4285

Abstract

Purpose

The objective of the paper is to investigate the relationship between financial risk and the value of the company. In this context, the study is to revisit the trade-off theory of capital structure in the Indian context.

Design/methodology/approach

After applying outlier, the study considered 389 nonfinancial companies from BSE500 from 2001 to 2018 collected from the Capitaline database. The statistical package E-views 10 has been utilized for analysis. To understand the nature of the data the descriptive analysis, correlation analysis, normality, unit root, multi-collinearity and Heteroskedasticity were conducted. The Panel Estimated Generalised Least Square with cross-section weight was found suitable for analysis due to the existence of cross-correlated residuals. Further, the study has classified the levels of financial risk to determine the relationship of different levels of financial risk with corporate value.

Findings

It was found that the financial risk and corporate value had a significant negative relation during the period of study. On class interval-wise financial risk analysis, it was found that the debt-equity (DE) of around 1:1 may be considered optimal. Below that threshold limit, the DE affects value positively above which the ratio affects the value negatively.

Originality/value

The paper makes an attempt to determine the optimal financial risk at the corporate level in the Indian context.

Details

Rajagiri Management Journal, vol. 16 no. 3
Type: Research Article
ISSN: 0972-9968

Keywords

1 – 1 of 1
Per page
102050