Firms’ Financing Decisions in Deficit and Surplus Situations : Survey-Based Evidence from India

The aim of this paper is to investigate the financing decisions of Indian corporate managers in deficit and surplus situations. The study analyzes the survey results derived from questionnaires received from the companies' Chief Financial Officers (CFOs)/Finance Managers/Directors Finance, using descriptive statistics. The survey findings indicate that a majority of the Indian companies prefer to adjust their capital when they face deficits or have surpluses. During deficiency, firms' preference is to avoid future capital expenditures and issue of long-term debt to finance deficits. In contrast, companies having surpluses indicate their preference to (i) deposit surplus funds with banks for a short period; and (ii) utilize surpluses to redeem debt. On the aspect of choice of financing sources, the results are consistent with the pecking order hypothesis. Deficit firms have marked preference for long-term debt to finance deficits and surplus firms opt for short-term debt for future needs