Abstract
PurposeWe aim to analyze the capital structure heterogeneity for manufacturing and service sector firms. Additionally, we analyze the impact of the COVID-19 pandemic on the leverage adjustments of corporate firms.Design/methodology/approachThis study applies the two-step system generalized method of moments (system-GMM) and panel data of 1,115 manufacturing and 482 service sector firms listed with the Bombay Stock Exchange (S&P BSE) from 2010 to 2023. We developed and analyzed three models. Model 1 analyzes the leverage determinants and speed of adjustment (SOA) for the manufacturing and service sectors. Model 2 evaluates the leverage SOA for various sub-sectors, and Model 3 analyzes the impact of the COVID-19 pandemic on the leverage SOA.FindingsThis study suggests the three following. First, the direction of leverage determinants suggests that manufacturing firms are highly tangible. In contrast, service sector firms are high-growth firms and recorded a higher SOA (12.01%) than manufacturing (9.09%). Second, analyzing the leverage heterogeneity, we found that SOA varies across the sub-sectors. For manufacturing, food and beverage sub-sector recorded the highest SOA (12.58%), while consumer durables reported the lowest (6.38%). Communication recorded the highest (24.15%) for services, while industrial services recorded the lowest (11.18%). Third, firms across sectors and sub-sectors increased their SOA during COVID-19 pandemic.Research limitations/implicationsThis in-depth analysis of leverage heterogeneity for different sectors and subsectors will assist policymakers, corporate managers and other stakeholders in making agile financial decisions.Originality/valueThe analysis of leverage heterogeneity for the manufacturing and service sector from the emerging Indian economy marks a novel contribution to existing literature.