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Corporate investment and political federalism: does judicial efficiency matter?

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  • Saibal Ghosh

    () (Qatar Central Bank)

Abstract

The study exploits the variation in judicial efficiency across Indian states together with the heterogeneity in firm financing constraint and distress indicator to estimate the effect on firm investment. Using data for 2001–2013, we show that financially constrained firms registered in states with high judicial inefficiency exhibit lower investment, an effect that is exacerbated during the crisis. As well, investment is lower for distressed firms in states with high labour activism. Taken together, the evidence is consistent with the law and finance literature, and suggests that quality of contract enforcement and heterogeneity in creditor protection plays a key role in influencing firm investment.

Suggested Citation

  • Saibal Ghosh, 2018. "Corporate investment and political federalism: does judicial efficiency matter?," Indian Economic Review, Springer, vol. 53(1), pages 263-285, December.
  • Handle: RePEc:spr:inecre:v:53:y:2018:i:1:d:10.1007_s41775-018-0027-x
    DOI: 10.1007/s41775-018-0027-x
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    More about this item

    Keywords

    Judicial efficiency; Financing constraint; Financial distress; Investment; India;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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