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

  • 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)

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.

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File URL: http://hdl.handle.net/10.1002/jid.873
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 14 (2002)
Issue (Month): 2 ()
Pages: 211-228

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Handle: RePEc:wly:jintdv:v:14:y:2002:i:2:p:211-228
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  1. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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