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Debt and corporate governance in emerging economies

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  • Jayati Sarkar
  • Subrata Sarkar

Abstract

We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. Using cross-sectional data on listed manufacturing firms we estimate, simultaneously, the relation between Tobin's Q and leverage for three years, 1996, 2000 and 2003. Our analysis indicates that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions became more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. In general, our results highlight the role of ownership structures and institutions in debt governance. Copyright (c) 2008 The Authors.

Suggested Citation

  • Jayati Sarkar & Subrata Sarkar, 2008. "Debt and corporate governance in emerging economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 16(2), pages 293-334, April.
  • Handle: RePEc:bla:etrans:v:16:y:2008:i:2:p:293-334
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    References listed on IDEAS

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    1. Sujata Visaria, 2009. "Legal Reform and Loan Repayment: The Microeconomic Impact of Debt Recovery Tribunals in India," American Economic Journal: Applied Economics, American Economic Association, vol. 1(3), pages 59-81, July.
    2. Walter Novaes, 2003. "Capital Structure Choice When Managers Are in Control: Entrenchment versus Efficiency," The Journal of Business, University of Chicago Press, vol. 76(1), pages 49-82, January.
    3. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
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    Cited by:

    1. Hayam Wahba, 2014. "Capital structure, managerial ownership and firm performance: evidence from Egypt," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1041-1061, November.
    2. repec:bap:journl:170305 is not listed on IDEAS

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