Stock Market Development and Its Impact on the Financing

Topics: Corporate finance, Economics, Finance Pages: 2 (597 words) Published: September 2, 2008
During the late 1980s, the developing countries started liberalizing their financial sectors. Increased emphasis was put on the development of equity markets. India also followed this path. Stock markets grew rapidly in India during the late 1980s and early 1990s. Capital markets have taken a prominent place in the developing countries’ financial system during the last decade. Given this backdrop, it is important to assess the impact of stock markets on a country’s economic development. One of the most obvious and direct effect of the stock market is on the corporate sector of a country. This study intends to find out how the development of stock markets has affected the financing pattern of the Indian corporate sector. This paper is organized in the following way. Section 1 surveys the literature on the subject of stock market development and its impact on the capital structure of the firms in developing countries. This survey will prepare the groundwork for the empirical analysis in section 2. Section 2 empirically investigates how the financing pattern of Indian firms has changed with the development of stock markets in the country. The results from this section will then be compared with the results from the earlier studies. Section 3 tries to explain the findings of section 2 in the Indian context. Section 1: Corporate Financing Pattern in Developing

Countries – A Literature Survey.
This section reviews the empirical literature on stock market development and firm financing choices in developing countries. This section will not review the theoretical works on corporate finance and capital structures. There are several studies that have reviewed this vast theoretical literature on capital structure. Some of the most extensive ones are Harris and Raviv (1991) and Samuel (1996)i . This section will report the empirical findings of the capital structure of the developing countries. However, before proceeding further we briefly look at some of the...
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