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Corporate choice for overseas borrowings: The Indian evidence

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  • Singh, Bhupal

Abstract

This paper examines the macroeconomic factors that drive the Indian corporates’ preference for overseas borrowings. Foreign borrowings by Indian corporates are characterised by a large number of companies accessing international capital markets for small size loans. The policy framework on foreign commercial borrowings has been effective in achieving a balanced maturity profile as also in channelising funds to productive sectors. It is observed that foreign borrowings by the corporates and import of capital goods display a close positive relationship. Since capital goods import is closely related to growth in industrial production, it implies that the demand for foreign borrowings by the corporates is generated by the underlying pace of real activity. The estimated error correction model revealed that Indian corporates’ long-run demand for overseas commercial borrowings is predominantly influenced by the pace of domestic real activity, followed by the interest rate differentials between the domestic and international markets (indicating arbitrage) and the credit conditions. The real variable dominates the price variable in driving the demand for overseas commercial borrowings.

Suggested Citation

  • Singh, Bhupal, 2007. "Corporate choice for overseas borrowings: The Indian evidence," MPRA Paper 13220, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13220
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    File URL: https://mpra.ub.uni-muenchen.de/13220/1/MPRA_paper_13220.pdf
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    References listed on IDEAS

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    1. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
    2. Shahrokh M Saudagaran, 1988. "An Empirical Study of Selected Factors Influencing the Decision to List on Foreign Stock Exchanges," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 19(1), pages 101-127, March.
    3. Schmukler,Sergio L. & Versperoni,Esteban, 2000. "Globalization and firms'financing choices - evidence from emerging economies," Policy Research Working Paper Series 2323, The World Bank.
    4. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    5. Mohanty, Jaya & Singh, Bhupal & Jain, Rajeev, 2003. "Business cycles and leading indicators of industrial activity in India," MPRA Paper 12149, University Library of Munich, Germany.
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    Cited by:

    1. Mohammad Mustafa & Syed Shahid Mazhar, 2021. "Commitment to capital raising for venture capital funds in India: An Application of ARDL Model," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 13(2), pages 121-133, December.
    2. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2020. "Why do Indian Firms Borrow in Foreign Currency?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(2), pages 191-211, May.
    3. Mohan, Rakesh & Kapur, Muneesh, 2009. "Managing the Impossible Trinity: Volatile Capital Flows and Indian Monetary Policy," MPRA Paper 70632, University Library of Munich, Germany.
    4. Sur, Abhisek & Ray, Partha & Nandy, Amarendu, 2019. "India’s external commercial borrowing: Pulled by domestic fundamentals or pushed by global conditions?," Journal of Asian Economics, Elsevier, vol. 61(C), pages 65-77.

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    More about this item

    Keywords

    Financial markets; corporate overseas borrowings; credit; interest rate arbitrage;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G3 - Financial Economics - - Corporate Finance and Governance

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