Financing Firms in India

63 Pages Posted: 30 Jun 2006 Last revised: 5 Dec 2011

Franklin Allen

University of Pennsylvania - Finance Department; European Corporate Governance Institute (ECGI)

Rajesh Chakrabarti

OP Jindal Global University; Wadhwani Foundation

Sankar De

Independent

Jun Qian

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR)

Meijun Qian

Australian National University (ANU) - College of Business and Economics

Multiple version iconThere are 3 versions of this paper

Date Written: April 11, 2009

Abstract

With extensive cross-country datasets and India firm samples, as well as our own surveys of small and medium firms, we examine the legal and business environments, financing channels, and growth patterns of different types of firms in India. Despite the English common-law origin and a British-style judicial system, Indian firms face weak investor protection in practice and poor institutions characterized by corruption and inefficiency. Alternative finance, including financing from all non-bank, non-market sources, and generally backed by non-legal mechanisms, constitutes the most important form of external finance. Bank loans provide the second most important external financing source. Firms with access to bank or market finance are not associated with higher growth rates. Our results indicate that bank and market finance is not superior to alternative finance in fast-growing economies such as India.

Keywords: India, banks, markets, alternative finance, growth

JEL Classification: O5, K0, G0

Suggested Citation

Allen, Franklin and Chakrabarti, Rajesh and De, Sankar and Qian, Jun and Qian, Meijun, Financing Firms in India (April 11, 2009). EFA 2006 Zurich Meetings. Available at SSRN: https://ssrn.com/abstract=898066 or http://dx.doi.org/10.2139/ssrn.898066

Franklin Allen (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-3629 (Phone)
215-573-2207 (Fax)

HOME PAGE: http://finance.wharton.upenn.edu/~allenf/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Rajesh Chakrabarti

OP Jindal Global University ( email )

India

Wadhwani Foundation ( email )

315 CR Park
New Delhi, New Delhi
India

Sankar De

Independent ( email )

Villa 286 bTR
Srisalam Highway
Hyderabad, Telengana
+91 7042662505 (Phone)

Jun Qian

Shanghai Advanced Institute of Finance(SAIF), Shanghai Jiao Tong University ( email )

211 West Huaihai Road
Shanghai, 200030
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

China Academy of Financial Research (CAFR)

1954 Huashan Road
Shanghai P.R.China, 200030
China

Meijun Qian

Australian National University (ANU) - College of Business and Economics ( email )

Canberra
Australia

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