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Financing firms in India

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Author Info
Allen, Franklin
Chakrabarti, Rajesh
De, Sankar
Qian, Jun
Qian, Meijun

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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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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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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Guariglia, Alessandra & Santos-Paulino, Amelia U., 2008. "Export Productivity, Finance, and Economic Growth: Are the Southern Engines of Growth Different?," Working Papers RP2008/27, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  2. 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.). [Downloadable!]
  3. Lane, Philip R. & Schmukler, Sergio L., 2007. "The international financial integration of China and India," Policy Research Working Paper Series 4132, The World Bank. [Downloadable!]
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  4. Hiroko Oura, 2008. "Financial Development and Growth in India: A Growing Tiger in a Cage?," IMF Working Papers 08/79, International Monetary Fund. [Downloadable!]
  5. C Niranjan Rao, 2008. "The Role of Intellectual Property Rights in Information and Communication Technologies," Working Papers id:1742, esocialsciences.com. [Downloadable!]
  6. Jahangir Aziz, . "Deconstructing China's and India's Growth: the Role of Financial Policies," Indian Council for Research on International Economic Relations, New Delhi Working Papers 224, Indian Council for Research on International Economic Relations, New Delhi, India. [Downloadable!]
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