Global Value Chains Participation and Capital Structure: Evidence from the Indian Manufacturing Industry

Abstract

This study investigates how firms’ participation in the global value chain (GVC) affects their capital structure decisions. In finance, capital structure plays a critical role in shaping a firm’s future, particularly in terms of fund flows within the organization. Moreover, capital structure decisions can be influenced by a firm’s backward and forward participation in the GVC. A firm’s decision to participate in the GVC is further affected by industry-level tariff structures. Using Indian manufacturing firm-level data from 2011 to 2020, this study constructs GVC participation as a binary variable, which takes the value of one if a firm engages in both importing and exporting activities—representing both backward and forward participation in the value chain. Additionally, the study employs output tariff and input tariff as two measures of the tariff structure at the National Industrial Classification (NIC) 4-digit level. By applying various panel data estimation techniques, the findings suggest that GVC participation increases a firm’s leverage, profitability, and tangibility, indicating that GVC participation is a critical variable in moderating fund flows. In line with existing literature, the study also identifies a positive relationship between firms’ leverage and both output tariff and input tariff rates. This study concludes that global exposure, in terms of GVC participation and international trade policy, is an important consideration for firm managers when making capital structure decisions, particularly with respect to firms’ leverage. © 2025 Elsevier B.V., All rights reserved.