Investment and Capital Market Imperfections: Some Evidence from a Developing Economy, India
AbstractThis paper presents a switching regression model of investment decision where the probability of a firm facing financial constraint is endogenously determined. The approach, therefore, obviates the use of a priori criteria to exogenously identify the financially constrained firms, and thereby addresses the potential misclassification problem faced in the existing literature. A sample of 576 Indian manufacturing firms, collected across 15 broad industries is used for this study. The study establishes that financially constrained firms exhibit a much higher investment-cash flow sensitivity than those identified to be unconstrained. It also probes into the possible determinants of financial constraints, and finds empirical support for its hypothesis that young, liquidity constrained and low dividend payout firms are more likely to face financial constraints, when compared to their respective counterparts. This paper also provides some insight into the impact of the ongoing liberalization program on the financial constraints faced by the Indian firms.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.
Volume (Year): 11 (2008)
Issue (Month): 03 ()
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Web page: http://www.worldscinet.com/rpbfmp/rpbfmp.shtml
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- G2 - Financial Economics - - Financial Institutions and Services
- G3 - Financial Economics - - Corporate Finance and Governance
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- Carlos Carreira & Filipe Silva, 2010.
"No Deep Pockets: Some Stylized Empirical Results On Firms' Financial Constraints,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 24(4), pages 731-753, 09.
- Filipe Silva & Carlos Carreira, 2009. "No Deep Pockets: Some stylized results on firms' financial constraints," GEMF Working Papers 2009-06, GEMF - Faculdade de Economia, Universidade de Coimbra.
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