Financing Firms in India
Franklin Allen, Rajesh Chakrabarti, Sankar De, Jun Qian and Meijun Qian, December 2011
An older version of this paper appears as #06-08
This version is forthcoming in the Journal of Financial Interemediation
Abstract: With extensive cross-country datasets and India firm samples, as well as our own surveys of small and
medium firms, we examine the legal and business environments, financing channels, and growth patterns of
different types of firms in India. Despite the English common-law origin and a British-style judicial system,
Indian firms face weak investor protection in practice and poor institutions characterized by corruption and
inefficiency. Alternative finance, including financing from all non-bank, non-market sources, and generally
backed by non-legal mechanisms, constitutes the most important form of external finance. Bank loans
provide the second most important external financing source. Firms with access to bank or market finance are
not associated with higher growth rates. Our results indicate that bank and market finance is not superior to
alternative finance in fast-growing economies such as India.
Keywords: India, banks, markets, alternative finance, growth..
JEL classifications : O5; K0; G0.
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