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.