Debt and Corporate Governance in Emerging Economies Evidence from India

42 Pages Posted: 14 Mar 2008

See all articles by Jayati Sarkar

Jayati Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR)

Abstract

We analyze the role of debt in corporate governance with respect to a large emerging economy, India, where debt has been an important source of external finance. Using cross-sectional data on listed manufacturing firms we estimate, simultaneously, the relation between Tobin's Q and leverage for three years, 1996, 2000 and 2003. Our analysis indicates that while in the early years of institutional change, debt did not have any disciplinary effect on either standalone or group affiliated firms, the disciplinary effect appeared in the later years as institutions became more market oriented. We also find limited evidence of debt being used as an expropriation mechanism in group firms that are more vulnerable to such expropriation. In general, our results highlight the role of ownership structures and institutions in debt governance.

Suggested Citation

Sarkar, Jayati and Sarkar, Subrata, Debt and Corporate Governance in Emerging Economies Evidence from India. Economics of Transition, Vol. 16, Issue 2, pp. 293-334, April 2008, Available at SSRN: https://ssrn.com/abstract=1105989 or http://dx.doi.org/10.1111/j.1468-0351.2008.00307.x

Jayati Sarkar (Contact Author)

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
91-22-8400919 (Phone)
91-22-8402752 (Fax)

Subrata Sarkar

Indira Gandhi Institute of Development Research (IGIDR) ( email )

Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
(91)-(22)-840 0919 (Phone)
(91)-(22)-840 2752 (Fax)

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