Bank Concentration and Firm Investment: Empirical Evidence from India

Abubakr Saeed and Olusegun Vincent

Emerging Markets Finance and Trade, 2012, vol. 48, issue 3, 85-105

Abstract: This paper investigates the impact of bank concentration on firm-level investment across firm groups classified according to size, investment destination, and debt maturity structure. Using data of 302 manufacturing firms for the period 2000-2009, we show that elevated financial constraints are associated with small and medium-size enterprises and firms that are dependent on short-term debt and exhibit high levels of sensitivity of investment to cash flow. Our empirical finding confirms that bank concentration exerts a positive impact on firms' financial constraints on investment. This effect is more pronounced for small firms and firms dependent on short-term debt. However, our results are indifferent to domestic versus foreign investing firm groups.

Keywords: developing economy; financial constraints; financial reforms; internal finance; investment-cash flow sensitivity (search for similar items in EconPapers)
Date: 2012
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