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Are listed Indian firms finance constrained: Evidence for 1991-92 to 1997-98

Author

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  • Bagchi, A. K.
  • Das, Pranab Kumar
  • Moitra, B.

Abstract

We formulate a simultaneous equations model and with the data of a panel of 600 Indian firms for the period 1991-92 to 1997-98 test the hypothesis of finance constraint. The firms are classified by the dividend pay-out ratio into high-cost and low-cost groups; a high dividend pay-out ratio implies a low cost of information faced by the firms and vice versa. In the context of developed countries, earlier researchers found that the firms in the high-cost group shows evidence of finance constraints and severity of the constraint goes down with the decrease in the cost of information. In our study we found that the firms with medium dividend pay-out ratios are constrained in the loans market so far as investment in fixed capital is concerned. This is quite a surprising result that requires careful explanation.

Suggested Citation

  • Bagchi, A. K. & Das, Pranab Kumar & Moitra, B., 2002. "Are listed Indian firms finance constrained: Evidence for 1991-92 to 1997-98," MPRA Paper 41611, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:41611
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    References listed on IDEAS

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    Cited by:

    1. Pranab Kumar Das, 2014. "Finance Constraint and Firm Investment: A Survey of Econometric Methodology," Accounting and Finance Research, Sciedu Press, vol. 3(2), pages 138-138, May.
    2. Mughees Tahir Bhalli & Shahid Mansoor Hashmi & Arslan Majeed, 2017. "Sensitivity of Firms’ Investment and Cash Flow: A Case Study of Manufacturing Sector of Pakistan," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(64), pages 28-47, June.
    3. Das, Pranab Kumar, 2008. "Fundamentals, financial factors and firm investment in India: A Panel VAR approach," MPRA Paper 41612, University Library of Munich, Germany.
    4. Malcolm Athaide & H. K. Pradhan, 0. "A model of credit constraint for MSMEs in India," Small Business Economics, Springer, vol. 0, pages 1-19.
    5. Malcolm Athaide & H. K. Pradhan, 2020. "A model of credit constraint for MSMEs in India," Small Business Economics, Springer, vol. 55(4), pages 1159-1177, December.

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    More about this item

    Keywords

    Investment; Credit Rationing; Imperfect Information; Fixed Capital; Working Capital;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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