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Firm financing in India : recent trends and patterns : Firm financing in India: recent trends and factors (English)

Using balance sheet information for nearly 6,000 firms between 1994-2003, this study investigates recent firm financing patterns in India. The paper documents the overall use of debt and, in particular, the role of bank financing (short-term and long-term), trade credit, intrabusiness group borrowing and foreign financing. The study examines financing patterns over time and explores differences across firms by sector, age, ownership type, export orientation, and, in particular, size. In terms of trends, we find that while debt to asset ratios have been relatively stable, nominal debt growth has slowed down in recent years. At the same time, firms' repayment capacity, as measured by the interest coverage ratio has exhibited a U-shaped pattern falling during 1997-99 and recovering in recent years. Throughout the period of study, bank financing as a share of total debt has increased, while borrowing from non-bank financial institutions fell sharply. In terms of differences across firms, the most robust finding is that debt levels increase with firm size. Smaller firms have especially less debt relative to larger firms if they are young (below 10 years since incorporation), if they are in the manufacturing sector, and if they are located in Southern India. Furthermore, while the ratio of debt to assets has been relatively stable for large firms, we observe a significant decline for smaller firms. Overall, the findings presented in the paper provide suggestive (but not definite) evidence of stronger credit constraints for smaller firms.


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    Love,Inessa, Martinez Peria,Maria Soledad

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    Policy Research Working Paper

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    The World Region,

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    Firm financing in India: recent trends and factors

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    interest coverage ratio;small and medium enterprise;share of bank debt;asset ratio;average debt ratio;ratio of debt;high debt levels;formal financial intermediary;government directed credit;return on asset;role of bank;balance sheet information;formal financial institution;finance and growth;portion of total;share of debt;composition of debt;long term debt;public debt market;term of ownership;supply of finance;nominal growth rate;stock of debt;share of earning;financial sector policy;threat of bankruptcy;machinery and equipment;event of default;general insurance;case of bankruptcy;firm size;net worth;firm financing;total debt;medium firms;trade credit;debt finance;repayment capacity;equity holder;financing pattern;long-term debt;capital structure;median ratio;total borrowing;export orientation;debt holder;public borrowing;average interest;manufacturing sector;computer industry;foreign borrowing;regression analysis;age category;bank borrowing;corporate financing;fixed asset;Fixed Assets;agency problem;Cash flow;internal fund;bank finance;firm level;foreign financing;debt obligation;debt repayment;debt growth;sample period;small fraction;hire purchase;tangible asset;firm profitability;metals sector;industrial groups;external financing;food sector;textile industry;sectoral classification;credit constraint;descriptive statistic;asset substitution;debt structure;firm operation;secured debt;short-term debt;financial status;negative relationship;government ownership;empirical study;financing capacity;positive relationship;retained earnings;large debt;unsustainable use;consultancy service;ownership structure;tax saving;firm owner;bankruptcy cost;agency cost;tax deduction;Equity Finance;small sample;present indicator;regression results;survey data;firm performance;negative shock;asset growth;individual loan;electrical goods;liabilities ratio;book value;empirical literature;corporate sector;financial distress;government loan;financing source;account receivable;External Finance;insurance companies;high-debt country;database management;multimedia service;government borrowing;sectoral composition;ownership tie;municipal government;commercial borrowing;study including;accrued interest;deferred tax;retirement benefit;aggregate debt;financial industry;research assistance;macro level;important change;investment climate;competitive term;firm growth;debt interest;foreign equity;asymmetric information;foreign ownership;informal credit;investment yield;excessive perquisite;debt contract;



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Love,Inessa Martinez Peria,Maria Soledad

Firm financing in India : recent trends and patterns : Firm financing in India: recent trends and factors (English). Policy, Research working paper ; no. WPS 3476 Washington, D.C. : World Bank Group.