Does Local Financial Development Matter for Firm Lifecycle in India?
The differences in financial development across Indian states, while seeming substantial, have a minor effect on firm lifecycle and growth. These results hold controlling for differences in labor regulations across states, capital intensity, and fo...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank Group, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/08/20132223/local-financial-development-matter-firm-lifecycle-india http://hdl.handle.net/10986/20349 |
| Summary: | The differences in financial development
across Indian states, while seeming substantial, have a
minor effect on firm lifecycle and growth. These results
hold controlling for differences in labor regulations across
states, capital intensity, and for firms born before and
after the major reforms. There is no evidence that firms in
financially dependent industries have different lifecycle
profiles or grow faster in financially developed states than
underdeveloped states. Overall, firms in the formal
manufacturing sector grow as they age whereas in the
informal sector, firms have a declining lifecycle, but in
both cases little evidence is found that financial
institutions matter for firm lifecycle. The findings of this
paper suggest that size and depth differences in financial
development across Indian states are likely dwarfed by
overall inefficiencies that characterize state-dominated
financial systems, with important implications for the
reforms of the Indian financial system going forward. |
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