IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Financing firms in India

Listed author(s):
  • Allen, Franklin
  • Chakrabarti, Rajesh
  • De, Sankar
  • Qian, Jun “QJ”
  • Qian, Meijun

With extensive cross-country datasets and India firm samples, as well as our own surveys of small and medium firms, we examine the legal and business environments, financing channels, and growth patterns of different types of firms in India. Despite the English common-law origin and a British-style judicial system, Indian firms face weak investor protection in practice and poor institutions characterized by corruption and inefficiency. Alternative finance, including financing from all nonbank, nonmarket sources, and generally backed by nonlegal mechanisms, constitutes the most important form of external finance. Bank loans provide the second most important external financing source. Firms with access to bank or market finance are not associated with higher growth rates. Our results indicate that bank and market finance is not superior to alternative finance in fast-growing economies such as India.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S1042957312000046
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 21 (2012)
Issue (Month): 3 ()
Pages: 409-445

as
in new window

Handle: RePEc:eee:jfinin:v:21:y:2012:i:3:p:409-445
DOI: 10.1016/j.jfi.2012.01.003
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

References listed on IDEAS
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.:

as in new window
  1. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  2. Beck, T.H.L. & Demirgüc-Kunt, A. & Maksimovic, V., 2008. "Financing patterns around the world : Are small firms different?," Other publications TiSEM 7078f1cc-51a6-4556-b193-d, Tilburg University, School of Economics and Management.
  3. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
  4. Rafael La porta & Florencio Lopez-De-Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, 06.
  5. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
  6. Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
  7. Meghana Ayyagari & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2010. "Formal versus Informal Finance: Evidence from China," Review of Financial Studies, Society for Financial Studies, vol. 23(8), pages 3048-3097, August.
  8. Burkart, Mike & Panunzi, Fausto & Shleifer, Andrei, 2002. "Family Firms," CEPR Discussion Papers 3234, C.E.P.R. Discussion Papers.
    • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October.
  9. Josh Lerner & Antoinette Schoar, 2005. "Does Legal Enforcement Affect Financial Transactions? The Contractual Channel in Private Equity," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 223-246.
  10. Daniel Berkowitz & Karina Pistor & Jean-Francois Richard, 2001. "Economic Development, Legality, and the Transplant Effect," William Davidson Institute Working Papers Series 410, William Davidson Institute at the University of Michigan.
  11. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  12. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  13. Julian Franks & Colin Mayer & Stefano Rossi, 2009. "Ownership: Evolution and Regulation," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4009-4056, October.
  14. Rodrik, Dani & Subramanian, Arvind, 2004. "From 'Hindu Growth' to Productivity Surge: The Mystery of the Indian Growth Transition," CEPR Discussion Papers 4371, C.E.P.R. Discussion Papers.
  15. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2000. "Ferreting Out Tunneling: An Application to Indian Business Groups," NBER Working Papers 7952, National Bureau of Economic Research, Inc.
  16. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Agency Problems and Dividend Policies Around the World," Harvard Institute of Economic Research Working Papers 1839, Harvard - Institute of Economic Research.
  17. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
  18. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2004. "Judicial Checks and Balances," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 445-470, April.
  19. Rene M. Stulz, 2005. "The Limits of Financial Globalization," NBER Working Papers 11070, National Bureau of Economic Research, Inc.
  20. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships and Informal Credit in Vietnam," The Quarterly Journal of Economics, Oxford University Press, vol. 114(4), pages 1285-1320.
  21. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2005. "Financial and Legal Constraints to Growth: Does Firm Size Matter?," Journal of Finance, American Finance Association, vol. 60(1), pages 137-177, 02.
  22. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
  23. Botero, J. C. & Djankov, S. & Porta, R. L. & Lopez-de-Silanes, F. & Shleifer, Andrei, 2004. "The Regulation of Labor," Scholarly Articles 27867241, Harvard University Department of Economics.
  24. Levine, Ross & Zervos, Sara, 1996. "Stock markets, banks, and economic growth," Policy Research Working Paper Series 1690, The World Bank.
  25. Rafael Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, 02.
  26. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  27. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, 04.
  28. Dani Rodrik & Arvind Subramanian, 2004. "From “Hindu Growth†to Productivity Surge; The Mystery of the Indian Growth Transition," IMF Working Papers 04/77, International Monetary Fund.
  29. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
  30. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
  31. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
  32. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  33. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 1-37.
  34. Stulz, Rene M. & Williamson, Rohan, 2003. "Culture, openness, and finance," Journal of Financial Economics, Elsevier, vol. 70(3), pages 313-349, December.
  35. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "Courts: The Lex Mundi Project," Harvard Institute of Economic Research Working Papers 1951, Harvard - Institute of Economic Research.
  36. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  37. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
  38. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  39. Ross Levine, 1990. "Financial structure and economic development," International Finance Discussion Papers 381, Board of Governors of the Federal Reserve System (U.S.).
  40. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
  41. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
  42. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
  43. Love, Inessa & Martinez Peria, Maria Soledad, 2005. "Firm financing in India : recent trends and patterns," Policy Research Working Paper Series 3476, The World Bank.
  44. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
  45. Thorsten Beck & Asli Demirgüç-Kunt, 2004. "SMEs, Growth, and Poverty," World Bank Other Operational Studies 11278, The World Bank.
  46. Jith Jayaratne & Philip E. Strahan, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 639-670.
  47. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
  48. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  49. Randall Morck & Bernard Yeung & Wayne Yu, 1999. "The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?," Harvard Institute of Economic Research Working Papers 1879, Harvard - Institute of Economic Research.
  50. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
  51. Hiroko Oura, 2008. "Financial Development and Growth in India; A Growing Tiger in a Cage?," IMF Working Papers 08/79, International Monetary Fund.
  52. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
  53. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
  54. John McMillan & Christopher Woodruff, 2002. "The Central Role of Entrepreneurs in Transition Economies," Journal of Economic Perspectives, American Economic Association, vol. 16(3), pages 153-170, Summer.
  55. Holger Spamann, 2010. "The "Antidirector Rights Index" Revisited," Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 467-486, February.
  56. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
  57. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, vol. 55(2), pages 867-891, 04.
  58. Tarun Khanna & Yishay Yafeh, 2005. "Business Groups and Risk Sharing around the World," The Journal of Business, University of Chicago Press, vol. 78(1), pages 301-340, January.
  59. 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.
  60. Thorsten Beck & Ross Levine, 2002. "Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?," NBER Working Papers 8982, National Bureau of Economic Research, Inc.
  61. Gopalan, Radhakrishnan & Nanda, Vikram & Seru, Amit, 2007. "Affiliated firms and financial support: Evidence from Indian business groups," Journal of Financial Economics, Elsevier, vol. 86(3), pages 759-795, December.
  62. Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
  63. Abhijit V. Banerjee & Shawn Cole & Esther Duflo, 2004. "Banking Reform in India," India Policy Forum, Global Economy and Development Program, The Brookings Institution, vol. 1(1), pages 277-332.
  64. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
  65. Petya Koeva Brooks, 2003. "The Performance of Indian Banks During Financial Liberalization," IMF Working Papers 03/150, International Monetary Fund.
  66. Julian Franks & Colin Mayer & Hannes Wagner, 2006. "The Origins of the German Corporation - Finance, Ownership and Control," Review of Finance, European Finance Association, vol. 10(4), pages 537-585, December.
  67. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  68. Clifford G. Holderness, 2009. "The Myth of Diffuse Ownership in the United States," Review of Financial Studies, Society for Financial Studies, vol. 22(4), pages 1377-1408, April.
  69. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2005. "SMEs, Growth, and Poverty: Cross-Country Evidence," Journal of Economic Growth, Springer, vol. 10(3), pages 199-229, 09.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jfinin:v:21:y:2012:i:3:p:409-445. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.