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Allocation of capital in the post liberalized regime: a case study of the Indian corporate sector

  • Saumitra, Bhaduri
  • Amit, Kumar

The paper investigates the prevalent trends in the allocation of capital in an emerging economy, India, during the post financial liberalization regime. In contrast to the conventional wisdom that financial liberalization leads to better allocation of funds, the study could not find any obvious evidence of increase in the efficiency over the reform period, especially during the early years of reform. Further, the study highlights the disturbing trend of convergence of efficiencies across various strata of firms towards a lower level over the reform period. The paper rationalizes the decline as a result of excessive capacity creation in certain industries, financed by cheap external sources of finance, without any consideration of return or demand conditions. The paper, as a policy recommendation, highlights the importance of creating appropriate institutions prior to pursuing financial liberalization in developing countries like India.

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File URL: https://mpra.ub.uni-muenchen.de/37999/1/MPRA_paper_37999.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37999.

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Date of creation: 10 Apr 2012
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Handle: RePEc:pra:mprapa:37999
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  1. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521608275, 1.
  2. Arturo Galindo & Fabio Schiantarelli & Andrew Weiss, 2002. "Does Financial Liberalization Improve the Allocation of Investment?: Micro Evidence from Developing Countries," IDB Publications (Working Papers) 6496, Inter-American Development Bank.
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  12. Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
  13. K. R. Shanmugam & Saumitra Bhaduri, 2002. "Size, age and firm growth in the Indian manufacturing sector," Applied Economics Letters, Taylor & Francis Journals, vol. 9(9), pages 607-613.
  14. Thomas Mayer, 1959. "Plant and Equiptment Lead Times," The Journal of Business, University of Chicago Press, vol. 33, pages 127.
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  16. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  17. Beck, Thorsten & Levine, Ross & Loayza, Norman, 1999. "Finance and the sources of growth," Policy Research Working Paper Series 2057, The World Bank.
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  20. repec:oup:restud:v:51:y:1984:i:3:p:393-414 is not listed on IDEAS
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