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Financing Firms in India

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  • Allen, Franklin

    (University of PA)

  • Chakrabarti, Rajesh

    (Indiand School of Business, Hyderabad)

  • De, Sankar

    (Indian School of Business, Hyderabad)

  • Qian, Jun

    (Boston College)

  • Qian, Meijun

    (National Univesrity of Singapore)

Abstract

With extensive cross-country datasets and India firm samples, as well as our own surveys of small and medium firms, we examine the legal and business environments, financing channels, and growth patterns of different types of firms in India. Despite the English common-law origin and a British-style judicial system, Indian firms face weak investor protection in practice and poor institutions characterized by corruption and inefficiency. Alternative finance, including financing from all non-bank, non-market sources, and generally backed by non-legal mechanisms, constitutes the most important form of external finance. Bank loans provide the second most important external financing source. Firms with access to bank or market finance are not associated with higher growth rates. Our results indicate that bank and market finance is not superior to alternative finance in fast-growing economies such as India.

Suggested Citation

  • Allen, Franklin & Chakrabarti, Rajesh & De, Sankar & Qian, Jun & Qian, Meijun, 2011. "Financing Firms in India," Working Papers 12-01, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:12-01
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    • G00 - Financial Economics - - General - - - General
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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