ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

J Dennis RajakumarSubscribe to J Dennis Rajakumar

Corporate Financing and Investment Behaviour in India

Of the various financial sector reform measures initiated since the early 1990s, a greater emphasis was placed on broadening the equity market by removing control over the terms and pricing of capital issues. In response to this, the corporate financing pattern shifted towards greater equity financing. However, contrary to expectations, this has not had the desired impact on investment (capital formation), thereby undermining the efficiency of the financial system. The relationship between corporate financing patterns and investment has been explored using panel data analysis, incorporating investment theories and financial practices.

How Real Are Estimates of Corporate Investment?

The NAS estimates for private corporate investment based on RBI's studies of joint stock companies suffer from shrinking coverage, especially in the 1990s, leading to overestimates. Re-examining the official methodology, this study reports an alternative estimate. The results show that the level of re-estimated GFCF of the corporate sector had remained lower than that of NAS estimates. The trend between these two series has been diverging, more significantly since the mid-1990s. While the NAS series shows that the momentum of corporate investment has been sustained throughout the 1990s, the alternative estimates suggest that it had tapered off since the mid-1990s.

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