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Assessing the Impact of Financial and Capital Market Reforms on Firms’ Corporate Financing Patterns in India

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  • Sayuri Shirai

    (Faculty of Policy Management, Keio University 5322 Endo, Fujisawa Kanagawa 252-8520, sshirai@sfc.keio.ac.jp)

Abstract

India’s financial and capital market reforms since the early nineties have positively impacted on the performance of the banking sector and the capital market. Based on the 5,000 firm-level database, this article shows that high-quality firms—defined as those that are profitable, have access to the commercial paper market and face relatively stable profitability—have reduced the proportion of loans further in 1997-2001 as compared with the period of 1992-96. This tendency strengthened during the period when the IPO requirement was tightened and the stock-market boom collapsed (so that many firms increased recourse to bank loans). This indicates that the capital market has succeeded in differentiating high-quality firms from low-quality ones, thereby making it cheaper for the former to raise funds from the market. Given the frequent cases of malpractice and price riggings, however, the government still needs to make continuous efforts to improve the infrastructure by strengthening penalty associated with malpractice, tightening accounting and auditing standards, and providing timely and precise information.

Suggested Citation

  • Sayuri Shirai, 2004. "Assessing the Impact of Financial and Capital Market Reforms on Firms’ Corporate Financing Patterns in India," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 5(2), pages 189-208, September.
    • Handle: RePEc:sae:soueco:v:5:y:2004:i:2:p:189-208
    DOI: 10.1177/139156140400500201
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    References listed on IDEAS

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    Cited by:

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