Firm dynamics and credit constraints essays on Indian firms

Abstract

Credit constraint that arises from the discrepancy between financing sources has significant newlineimplications for firm growth and survival. The problem is more prevalent in emerging nations newlinewith the existence of an imperfect financial market. In this thesis, we have tried to diagnose newlinethe impact of credit constraints on several aspects of firm dynamics and identify the ways to newlineovercome credit barrier problems. This thesis has been divided into five chapters. In chapter newlineone, we have discussed the theoretical perspective behind the rationale for the emergence of newlinefirms in the economy. We have also provided a foundation for the imperfection which causes newlinecredit rationing between lenders and borrowers in the external credit market. The existing newlinereview of economic literature related to the link between credit constraints and firm dynamics newlinehas also been presented in this chapter and we have considered the objectives and respective newlineresearch questions. In chapter two, we empirically test the corporate investment behaviour newlineunder credit constraints and explore the usefulness of cash-flow sensitivity of investment as a newlinemeasure of credit constraints. The empirical result provides evidence that the investment newlinedecision of credit-constrained firms as identified a priori faces a higher degree of cash-flow newlinesensitivity. Furthermore, asset tangibility is found to reduce the severity of credit constraints newlineof firms, thereby uplifting investments. Chapter three discusses production fragmentations, newlineparticularly outsourcing, as a strategy by firms to overcome binding credit constraints. It newlineenvisages empirical evidence that credit constraints faced by organised sector manufacturing newlinefirms induce them to resort to outsourcing their production processes. It also makes an newlineempirical attempt to show the link between exporting and outsourcing decisions made by newlinefirms due to credit restrictions. Chapter four attempts to comprehend how credit barriers newlineaffect corporate environmental behaviour. It reveals that credit constraint is an encumbrance newlinefor the en