Inflated energy prices and capital structure: firm level evidence from Indian manufacturing sector

PurposeThe purpose of this paper is to study the influence of inflated energy prices on the capital structure of Indian manufacturing corporations and to investigate whether the capital structure of Indian firms is driven by demand shocks or supply shocks during the study period.Design/methodology/approachAfter conducting a thorough review of the capital structure and inflation-based research studies, panel data-based regression model and correlation matrix have been used as statistical tools for Indian manufacturing sector available with the Centre for Monitoring Indian Economy Prowess database.FindingsThe results suggest that variables like the presence of inflated energy prices had adversely influenced the capital structure of Indian corporations. Not only this, the study also highlights that factors pertaining to the demand shock had induced Indian corporations to have higher debt levels in the capital structure.Practical implicationsThis study has laid some ground work to explore the influence of inflation on capital structure of Indian firms upon which a more detailed evaluation could be based.Originality/valueTo the best of the authors' knowledge, this study is the first that explores the influence of inflated energy prices on the capital structure of manufacturing firms in India by using the most recent data.