Corporate choice for overseas borrowings: The Indian evidence
AbstractThis paper examines the macroeconomic factors that drive the Indian corporates’ preference for overseas borrowings. Foreign borrowings by Indian corporates are characterised by a large number of companies accessing international capital markets for small size loans. The policy framework on foreign commercial borrowings has been effective in achieving a balanced maturity profile as also in channelising funds to productive sectors. It is observed that foreign borrowings by the corporates and import of capital goods display a close positive relationship. Since capital goods import is closely related to growth in industrial production, it implies that the demand for foreign borrowings by the corporates is generated by the underlying pace of real activity. The estimated error correction model revealed that Indian corporates’ long-run demand for overseas commercial borrowings is predominantly influenced by the pace of domestic real activity, followed by the interest rate differentials between the domestic and international markets (indicating arbitrage) and the credit conditions. The real variable dominates the price variable in driving the demand for overseas commercial borrowings.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13220.
Date of creation: 2007
Date of revision:
Publication status: Published in Reserve Bank of India Occasional Papers 3.28(2007): pp. 1-33
Financial markets; corporate overseas borrowings; credit; interest rate arbitrage;
Find related papers by JEL classification:
- G1 - Financial Economics - - General Financial Markets
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- G3 - Financial Economics - - Corporate Finance and Governance
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William Davidson Institute Working Papers Series
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