Artha Vijnana: Journal of The Gokhale Institute of Politics and Economics

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Development of Capital Market and Bank-centric Industrial Finance in India


Affiliations
1 Indian Institute of Management, Calcutta, India
     

   Subscribe/Renew Journal


In the light of gradual development of financial market during the last three decades, this paper analyses the impact of the changing financing system structure of India on the financing pattern of Indian manufacturing firms, both at macro and firm levels. The longitudinal econometric analysis indicates that with the development of capital market, the bank credit intensity of industrial output has reduced and there is no significant impact of corporate bond market development on the manufacturing firms’ credit intensity of output. Further, the firm-level evidences suggest that while for larger firms, the financing pattern remained broadly unchanged since liberalization, the smaller firms are increasingly moving towards other sources of financing such as inter-corporate borrowing.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Allen, F., R. Chakrabarti, S. De and M. Qian (2012), Financing Firms in India, Journal of Financial Intermediation, 21(3): 409-445.

  • Banerjee, A., J.J. Dolado, D.F. Hendry and G.W. Smith (1986), Exploring Equilibrium Relationships in Econometrics through Static Models: Some MonteCarlo Evidence, Oxford Bulletin of Economics and Statistics, 48(3): 253-277.

  • Beck, T. and R. Levine (2002), Industry Growth and Capital Allocation: Does having a Market-or Bank-Based System Matter?, Journal of Financial Economics, 64(2): 147-180.

  • Beck, T., A. Demirgüç-Kunt and R. Levine (2009), Financial Institutions and Markets across Countries and Over Time-Data and Analysis, World Bank Policy Research Working Paper No. 4943.

  • Boyd, John and Prescott Edward (1986), Financial Intermediary Coalitions, Journal of Economic Theory,38(2): 211-232.

  • Demirgüç-Kunt, A., and V. Maksimovic (1998), Law, Finance, and Firm Growth, The Journal of Finance, 53(6): 2107-2137.

  • Diamond, D. (1984), Financial Intermediation and Delegated Monitoring, Review of Economic Studies, 51(3): 393-414.

  • Engle, R. and C. Granger (1987), Co-Integration and Error Correction: Representation, Estimation, and Testing, Econometrica, 55(2): 251-276, doi: 10.2307/1913236 Garcia, V.F., and L. Liu (1999), Macroeconomic Determinants of Stock Market Development, Journal of Applied Economics, 2(1): 29-59.

  • Ganesh‐Kumar, A., K. Sen and R.R. Vaidya (2002), Does the Source of Financing Matter? Financial Markets, Financial Intermediaries and Investment in India, Journal of International Development, 14(2): 211-228.

  • Goldsmith, R.W. (1969), Financial Structure and Development,New Haven, CT: Yale University Press.

  • Johansen, S. (1988), Statistical Analysis of Cointegration Vectors, Journal of Economic Dynamics and Control, 12(2): 231-254.

  • Jung, W.S. (1986), Financial Development and Economic Growth: International Evidence, Economic Development and Cultural Change, 34(2): 333-346.

  • Khanna, S. (1999), Financial Reforms and Industrial Sector in India, Economic and Political Weekly, 34(45): 3231-3241.

  • Love, I. and M.S.M. Peria (2005), Firm Financing in India: Recent Trends and Patterns,Vol. 3476, World Bank Publications.

  • Maddala, G.S. (1987), Limited Dependent Variable Models using Panel Data. Journal of Human Resources, 22(3): 307-338.

  • Maddala, G.S., and I.M. Kim (1998), Unit Roots, Cointegration, and Structural Change,No. 4. Cambridge University Press, UK.

  • Martin, V., S. Hurn and D. Harris (2012), Econometric Modelling with Time Series: Specification, Estimation and Testing,Cambridge University Press, NY.

  • Mayer, C. (1988), New Issuesin Corporate Finance, European Economic Review, 32(5): 1167-1183.

  • Modigliani, F. and M.H. Miller (1958), The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, 48(3): 261-297.

  • Mohan, R. (2004), Financefor Industrial Growth, RBI Bulletin, Reserve Bank of India, Mumbai.

  • Mohanty, M. and B.B. Chakrabarti (2006), A Status Report on India’s Financial System: A View from the Standpoint of Intermediation and Risk Bearing, Working Paper Series WPS-593, Indian Institute of Management, Calcutta.

  • Myers, S.C. and N.S. Majluf (1984), Corporate Financing and Investment Decisions when Firms have Information that Investors do not have, Journal of Financial Economics, 13(2): 187-221.

  • Patrick, H. (1966), Financial Development and Economic Growth in Underdeveloped Countries, Economic Development and Cultural Change,14(2): 174-189.

  • Perron, P. (1989), The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis, Econometrica,57(6): 1361-1401

  • Pesaran, M.H. and R.P. Smith (1998), Structural Analysis of Cointegrating VARs, Journal of Economic Surveys, 12(5): 471-505.

  • Pesaran, M.H., Y. Shin and R.J. Smith (2001), Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16(3): 289-326.

  • Rajan, R. and L. Zingales (1998), Financial Dependence and Growth, American Economic Review,88(3): 559-586.

  • Reserve Bank of India (2002), Report on Currency and Finance.

  • Rousseau, P. and P. Wachtel (1998), Financial Intermediation and Economic Performance: Historical Evidence from Five Industrialized Countries, Journal of Money, Credit and Banking, 30(4): 657-678.

  • Schwert, G.W. (1989), Tests for Unit Roots: A Monte Carlo Investigation, Journal of Business and Economic Statistics, 7(2): 147-159.

  • Singh, A. and J. Hamid (1992), Corporate Financial Structures in Developing Countries, IFC Technical Paper No. 1.

  • Singh, A. (1995), Corporate Financial Patternsin Industrializing Economies, IFC Technical Paper No. 2, Retrieved from http://documents.worldbank.org/-curated/en/858011468739577096/pdf/multi-page.pdf

  • Stock, J.H. and M.W. Watson (2012), Introduction to Econometrics, Prentice Hall, New York

  • Topalova, Petia (2004), Overview of the Indian Corporate Sector 1989-2002, IMF Working Paper 04/64.

  • Zivot, E. and D.W. Andrews (1992), Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root, Journal of Business and Economic Statistics, 10(0): 3.


Abstract Views: 610

PDF Views: 0




  • Development of Capital Market and Bank-centric Industrial Finance in India

Abstract Views: 610  |  PDF Views: 0

Authors

Shromona Ganguly
Indian Institute of Management, Calcutta, India

Abstract


In the light of gradual development of financial market during the last three decades, this paper analyses the impact of the changing financing system structure of India on the financing pattern of Indian manufacturing firms, both at macro and firm levels. The longitudinal econometric analysis indicates that with the development of capital market, the bank credit intensity of industrial output has reduced and there is no significant impact of corporate bond market development on the manufacturing firms’ credit intensity of output. Further, the firm-level evidences suggest that while for larger firms, the financing pattern remained broadly unchanged since liberalization, the smaller firms are increasingly moving towards other sources of financing such as inter-corporate borrowing.

References





DOI: https://doi.org/10.21648/arthavij%2F2020%2Fv62%2Fi2%2F196365