Do Public Equity Markets Matter in Emerging Economies? Evidence from India*

Abstract

Do public equity markets serve an unique role that is not easily served by other forms of financing in emerging economies? We analyze this question using the collapse of India's equity market in 1997, which provides an exogenous shock to firms' ability to issue equity. We find that both public and private firms exhibit higher bankruptcy rates and lower growth after 1997. The decline in growth is greater among firms with more external finance needs and fewer tangible assets. Overall, the evidence suggests that public equity markets are an important, not easily replaced, source of finance in emerging economies. Disciplines Finance | Finance and Financial Management

Financing constraints and investments in R&D: Evidence from Indian manufacturing firms

“…The information is mainly drawn from the annual reports and balance sheets of the firms. This database was previously employed by many firm level studies for analyzing the R&D investments (Sasidharan & Kathuria, 2011), testing financing constraints (Ghosh, 2006), analyzing the performance of business group firms (Khanna & Palepu, 2000), and examining impact of equity market collapse on firm financing (Gopalan & Gormley, 2013).…”

“…As expected, the equity market collapse is associated with lower capital expenditure, sales revenue, internal cash flow, equity financing, debt financing, and significant downward revision in Notes: Table provides the summary statistics of sample firms, subdivided based on the activity in Indian equity market. Following Gopalan and Gormley (2013), we classify the sample period into the phase of active equity market (1991-1996; 2003-2007) and the phase of inactive equity market. All the variables included are winsorized at one as well as at ninety-nine percentile to eliminate the effect of extreme values.…”

“…Indian companies are entering into research collaborations and alliances with global firms. Successive Science, Technology, andInnovation Policies-2003 and2013 propose an increase in gross expenditure on R&D (GERD) to the extent of 2% of GDP. However, GERD to GDP has not undergone any significant change since nineties.…”

“…Specifically, we consider the impact of two major liquidity shocks witnessed during the study period. These shocks were the collapse of India's equity market in 1997 (Gopalan & Gormley, 2013) and the recent financial crisis in 2008 respectively. By undertaking such an exercise, we contribute to a recent debate about the cyclicality of R&D (see Aghion, Askenazy, Berman, Cette, & Eymard, 2012;Barlevy, 2007).…”

Essays on the Effect of Board Gender Diversity on Firm Risk, Performance, and Institutions' Ownership Preferences

“…Ghosh (2006) investigates manufacturing firms to examine links between financial performance and the board of directors. Gopalan and Gormley (2013) use Prowess to examine the importance of public equity markets in emerging markets.…”