Finance Papers

Document Type

Journal Article

Date of this Version

7-2012

Publication Source

Journal of Financial Intermediation

Volume

21

Issue

3

Start Page

409

Last Page

445

DOI

10.1016/j.jfi.2012.01.003

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 nonbank, nonmarket sources, and generally backed by nonlegal 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.

Copyright/Permission Statement

© 2012. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

India, banks, markets, alternative finance, small and medium enterprises, growth

Embargo Date

1-14-2014

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Date Posted: 27 November 2017

This document has been peer reviewed.