Financial Development And Financing Constraints In A Developing Country - The Case Of Bangladesh

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Financial Development And Financing Constraints In A Developing Country - The Case Of Bangladesh

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Kang Kook Lee
Md. Rabiul Islam

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Kang-Kook Lee

Abstract

This paper examines the sensitivity of investment to available cash-stock, a measure for internal funds, for 192 listed non-financial firms of Bangladesh from 1992 to 2002. The empirical results show that smaller firms have greater financing constraints to investment than larger firms due to financial market imperfection and unequal access to external finance. We also find that financing constraints of investment by small firms are eased along with financial development. It is likely that financial development encourages efficiency of the financial market in Bangladesh, and hence decreases cash stock sensitivity of investment of small firms. Our finding demonstrates the importance of financial development for economic growth even in a developing country like Bangladesh.

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Paper provided by Monash University, Department of Economics in its series Development Research Unit Working Paper Series with number 09-09.

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Length: 31 pages
Date of creation: 02 May 2009
Date of revision:
Handle: RePEc:mos:druwps:2009-09

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Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-09-26 (All new papers)
NEP-CWA-2009-09-26 (Central & Western Asia)
NEP-DEV-2009-09-26 (Development)
NEP-FDG-2009-09-26 (Financial Development & Growth)
NEP-PKE-2009-09-26 (Post Keynesian Economics)

References listed on IDEAS
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