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Introduction
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 ...