Are listed Indian firms finance constrained: Evidence for 1991-92 to 1997-98

A. K. Bagchi, Pranab Das () and Bhaswar Moitra

MPRA Paper from University Library of Munich, Germany

Abstract: We formulate a simultaneous equations model and with the data of a panel of 600 Indian firms for the period 1991-92 to 1997-98 test the hypothesis of finance constraint. The firms are classified by the dividend pay-out ratio into high-cost and low-cost groups; a high dividend pay-out ratio implies a low cost of information faced by the firms and vice versa. In the context of developed countries, earlier researchers found that the firms in the high-cost group shows evidence of finance constraints and severity of the constraint goes down with the decrease in the cost of information. In our study we found that the firms with medium dividend pay-out ratios are constrained in the loans market so far as investment in fixed capital is concerned. This is quite a surprising result that requires careful explanation.

Keywords: Investment; Credit Rationing; Imperfect Information; Fixed Capital; Working Capital (search for similar items in EconPapers)
JEL-codes: D82 D92 O12 (search for similar items in EconPapers)
Date: 2002-02-23
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Citations: View citations in EconPapers (5)

Published in Economic and Political Weekly 8.37(2002): pp. 727-736

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