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.
| Original language | English |
|---|---|
| Pages (from-to) | 189-208 |
| Number of pages | 20 |
| Journal | South Asia Economic Journal |
| Volume | 5 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2004 |
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Keywords
- Banking Sector
- Capital Market Reforms
- India
- Information Asymmetry
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
Cite this
Assessing the Impact of Financial and Capital Market Reforms on Firms’ Corporate Financing Patterns in India. / Shirai, Sayuri.
In: South Asia Economic Journal, Vol. 5, No. 2, 2004, p. 189-208.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Assessing the Impact of Financial and Capital Market Reforms on Firms’ Corporate Financing Patterns in India
AU - Shirai, Sayuri
PY - 2004
Y1 - 2004
N2 - 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.
AB - 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.
KW - Banking Sector
KW - Capital Market Reforms
KW - India
KW - Information Asymmetry
UR - http://www.scopus.com/inward/record.url?scp=84993812234&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84993812234&partnerID=8YFLogxK
U2 - 10.1177/139156140400500201
DO - 10.1177/139156140400500201
M3 - Article
AN - SCOPUS:84993812234
VL - 5
SP - 189
EP - 208
JO - South Asia Economic Journal
JF - South Asia Economic Journal
SN - 1391-5614
IS - 2
ER -