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Introduction

In: Excess Cash Flow

Author

Listed:
  • Rahul Dhumale

Abstract

Economic studies which examine the financing patterns of firms, especially in emerging economies, seldom consider the market environment in which they operate. The most recent Asian financial crisis and its exposure of institutional failures in the context of financial sector liberalisation shows that these market conditions are vital. At a micro-economic level, free market economies function through institutions and corporate governance mechanisms including but not limited to well-defined bankruptcy procedures, disclosure norms, an effective market for corporate control, etc. — all of which reduce information imperfections and facilitate transparency and accountability. When these institutional conditions fail, market problems arise including adverse selection and moral hazard behaviour. Furthermore, the lack of a sound institutional and legal framework compounds these problems, with important implications for the corporate governance structures of firms. An examination of the financing choices of these firms can help to reveal the source of some of these institutional failures.

Suggested Citation

  • Rahul Dhumale, 2003. "Introduction," Palgrave Macmillan Books, in: Excess Cash Flow, chapter 1, pages 1-12, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-0-230-50951-1_1
    DOI: 10.1057/9780230509511_1
    as

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