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Does the source of financing matter? Financial markets, financial intermediaries and investment in India

Author

Listed:
  • A. Ganesh-Kumar
  • Kunal Sen

    (School of Development Studies, University of East Anglia, UK)

  • Rajendra R. Vaidya

    (Indira Gandhi Institute of Development Research, Mumbai, India)

Abstract

This paper extends the literature on finance and investment by examining the source of finance constraints on the firm's investment decisions. Using a panel of 714 Indian manufacturing firms for the period 1993-98, we find that the degree of 'finance constraint' differs significantly across external suppliers of funds with investments being most sensitive to borrowings from development finance institutions (DFIs) and considerably less sensitive to funds from capital markets and commercial banks. Capital markets and commercial banks seem to use outward orientation as a signal of the firm's ability to succeed whereas DFIs do not seem to have adopted such a criterion. Copyright © 2002 John Wiley & Sons, Ltd.

Suggested Citation

  • A. Ganesh-Kumar & Kunal Sen & Rajendra R. Vaidya, 2002. "Does the source of financing matter? Financial markets, financial intermediaries and investment in India," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(2), pages 211-228.
  • Handle: RePEc:wly:jintdv:v:14:y:2002:i:2:p:211-228
    DOI: 10.1002/jid.873
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    References listed on IDEAS

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    Cited by:

    1. Agustinus Prasetyantoko, 2006. "Financing Constraint and Firm Investment Following a Financial Crisis in Indonesia," Post-Print halshs-00133964, HAL.
    2. Bhattacharyya, Surajit, 2008. "Determinants of Corporate Investment: Post Liberalization Panel Data Evidence from Indian Firms," MPRA Paper 6702, University Library of Munich, Germany.
    3. Petia Topalova, 2004. "Overview of the Indian Corporate Sector; 1989-2002," IMF Working Papers 04/64, International Monetary Fund.

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