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Motives behind equity holding by banks: Evidence from India

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  • Mita Choudhury

Abstract

This paper examines the motives behind equity holding by banks in non-financial firms. It has been argued that banks hold equity in firms primarily for two reasons: to support their debt holding or for returns as capital investments. This paper tries to examine which among these two motives drive equity holdings by Development Financial Institutions in India (DFIs). Results indicate that equity holding by DFIs in India is primarily driven by their interest as creditors. In poorly performing firms, equity holding by DFIs is also driven by debt restructuring in firms in the form of conversion of debt to equity. Copyright Academy of Economics and Finance 2006

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  • Mita Choudhury, 2006. "Motives behind equity holding by banks: Evidence from India," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 30(3), pages 391-406, September.
    • Handle: RePEc:spr:jecfin:v:30:y:2006:i:3:p:391-406
    DOI: 10.1007/BF02752743
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    References listed on IDEAS

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    1. Jayati Sarkar & Subrata Sarkar, 2000. "Large Shareholder Activism in Corporate Governance in Developing Countries: Evidence from India," International Review of Finance, International Review of Finance Ltd., vol. 1(3), pages 161-194, September.
    2. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
    3. Kroszner, Randall S & Rajan, Raghuram G, 1994. "Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking before 1933," American Economic Review, American Economic Association, vol. 84(4), pages 810-832, September.
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