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Financing firms in India

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  • Allen, Franklin
  • Chakrabarti, Rajesh
  • De, Sankar
  • Qian, Jun
  • Qian, Meijun

Abstract

The authors examine the legal and business environments, financing channels, and governance mechanisms of various types of firms in India and compare them to those from other countries. Despite its English commonlaw origin, strong legal protection provided by the law, and a democratic government, corruption within India's legal system and government significantly weakens investor protection in practice. External financing of firms has been dominated by nonmarket sources of financing, while the characteristics of listed firms are similar to those from countries with weak investor protection. The evidence, including results based on a survey of small and medium-scale private firms, shows that alternative financing channels provide the most important source of funds. The authors also find that informal governance mechanisms, such as those based on reputation, trust, and relationships are more important than formal mechanisms (such as courts) in resolving disputes, overcoming corruption, and supporting growth.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3975.

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Date of creation: 01 Aug 2006
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Handle: RePEc:wbk:wbrwps:3975

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Keywords: Banks&Banking Reform; Corporate Law; Financial Intermediation; Governance Indicators; Small Scale Enterprise;

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Citations

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Cited by:
  1. Geoffrey N. Keim & Beth Anne Wilson, 2007. "India's future: it's about jobs," International Finance Discussion Papers 913, Board of Governors of the Federal Reserve System (U.S.).
  2. Lane, Philip R. & Schmukler, Sergio, 2006. "The International Financial Integration of China and India," CEPR Discussion Papers 5852, C.E.P.R. Discussion Papers.
  3. Sergio Schmukler & Tatiana Didier, 2013. "The Financing and Growth of Firms in China and India: Evidence from Capital Markets," 2013 Meeting Papers 98, Society for Economic Dynamics.
  4. Casey, Eddie & O'Toole, Conor, 2013. "Bank-lending constraints and alternative financing during the financial crisis: Evidence from European SMEs," Papers WP450, Economic and Social Research Institute (ESRI).
  5. Carlin, Bruce Ian & Dorobantu, Florin & Viswanathan, S., 2009. "Public trust, the law, and financial investment," Journal of Financial Economics, Elsevier, vol. 92(3), pages 321-341, June.
  6. Franklin ALLEN & Elena CARLETTI & Jun 'QJ' QIAN & Patricio VALENZUELA, 2012. "Financial Intermediation, Markets, and Alternative Financial Sectors," Economics Working Papers ECO2012/11, European University Institute.
  7. Hiroko Oura, 2008. "Financial Development and Growth in India," IMF Working Papers 08/79, International Monetary Fund.
  8. Robert P. Taylor & Chandrasekar Govindarajalu & Jeremy Levin & Anke S. Meyer & William A. Ward, 2008. "Financing Energy Efficiency : Lessons from Brazil, China, India, and Beyond," World Bank Publications, The World Bank, number 6349, October.

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