Multiobjective capital structure modelling: An empirical investigation of goal programming model using accounting proxies/ Yamini Agarwal K

Capital structure decisions (CSDs) have become complicated in this exceeding competitive business environment. Theories and models of 1950s are unable to incorporate the demands faced by the decision maker. New models are needed to incorporate multiple objectives and constraints. Stakeholders are awfully demanding. Practitioners attempt to innovatively build the capital structures to meet the needs of all stakeholders. Off and on balance sheet exposure contributes to financial commitments. In the light of this background, the present study investigates the Indian corporates for their capital structure choices and builds a goal programming model for CSDs. Capital structure practices in India are studied through a sample of top 500 companies classified in 19 industries over 10 year period (1998-2007). Accounting ratios (67) are used to define the multiple considerations before a decision maker. The study has also explored the relationship of leverage ratio with market capitalization and earnings per share (EPS). Using a questionnaire approach, the premise of multiple objectives for CSD is evaluated. Chief financial officers (CFOs) as respondents are investigated for their goals, priorities, motivations, constraints, and capital structure practices. The study has attempted to develop a goal programming (GP) model for providing satisficing solutions to multiple goals simultaneously by minimizing the deviation from the objective function after assuming that the decision maker is an optimist and does not attempt to satisfy all objectives fully. GP model has been developed and illustrated for CSDs through agriculture-based firm having multiple objectives that are proxied using accounting variables