Financing Firms in India

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

Franklin Allen

Imperial College London

Rajesh Chakrabarti

OP Jindal Global University; Wadhwani Foundation

Sankar De

Independent

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

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)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Rajesh Chakrabarti

OP Jindal Global University ( email )

India

Wadhwani Foundation ( email )

Subramanya Tech Park
EOIZ Industrial Area
Whitefield, Bengaluru 560066
India

Sankar De

Independent ( email )

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

Jun Qian

Fanhai International School of Finance, Fudan University ( email )

Shanghai
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/

Meijun Qian

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

Canberra
Australia

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