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 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.

Bibliographic Details

Main Authors:	Ayyagari, Meghana, Demirguc-Kunt, Asli, Maksimovic, Vojislav
Language:	English en_US
Published:	World Bank Group, Washington, DC 2014-08
Subjects:	ACCESS TO BANKING, ACCESS TO BANKING SERVICES, ACCOUNTING, AGE GROUP, AGE GROUPS, BANK BRANCH, BANK BRANCHES, BANK CREDIT, BANK FINANCING, BANKING REFORM, BANKING REGULATION, BANKING SECTOR, BANKING SERVICES, BANKING SYSTEM, BANKING SYSTEMS, BANKS, BRANCH, BRANCHES, BUSINESS ENVIRONMENT, BUSINESS ENVIRONMENTS, CAPITAL EXPENDITURES, CAPITAL MARKET, CASH FLOW, CHAMBERS OF COMMERCE, COMMERCIAL BANK, COMMERCIAL BANKS, COMPANY, CORPORATE ACQUISITIONS, CORPORATE FINANCE, CORPORATE GOVERNANCE, CORPORATIONS, CORRUPTION, CREDIT ALLOCATION, DEBT, DEPOSIT, DEPOSIT INSURANCE, DEPOSITS, DEVELOPMENT ECONOMICS, DIVERSIFICATION, DIVIDEND POLICY, ECONOMIC ACTIVITY, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC POLICIES, ECONOMIC POLICY, ECONOMIC REFORMS, ECONOMIC SUCCESS, ECONOMICS, EDUCATION LEVEL, EMPLOYEE, EMPLOYER, EMPLOYMENT, EMPLOYMENT DYNAMICS, EMPLOYMENT LEVELS, EMPLOYMENT PROTECTION LEGISLATION, ENTREPRENEURIAL ACTIVITY, ENTREPRENEURSHIP, EXPANSION, EXTERNAL FINANCE, EXTERNAL FINANCING, FINANCIAL ACCESS, FINANCIAL DEPTH, FINANCIAL DEVELOPMENT, FINANCIAL INSTITUTION, FINANCIAL INSTITUTIONS, FINANCIAL INTERMEDIATION, FINANCIAL LIBERALIZATION, FINANCIAL MARKETS, FINANCIAL OUTREACH, FINANCIAL SECTOR DEVELOPMENT, FINANCIAL SECTOR REFORMS, FINANCIAL STRUCTURE, FINANCIAL SYSTEM, FINANCIAL SYSTEMS, FIRM GROWTH, FIRM PERFORMANCE, FIRM SIZE, FIRM SIZE DISTRIBUTION, FIRMS, FLEXIBLE LABOR MARKETS, FOREIGN BANKS, FORMAL FINANCIAL INSTITUTION, GROWTH OPPORTUNITIES, INCOME, INDUSTRY CHARACTERISTICS, INEQUALITY, INFLEXIBLE LABOR, INFORMAL FINANCE, INFORMAL SECTOR, INTERNATIONAL BANK, JOB CREATION, LABOR FORCE, LABOR INTENSITY, LABOR LAWS, LABOR MARKET INSTITUTIONS, LABOR MARKET OUTCOMES, LABOR MARKET REGULATION, LABOR MARKET REGULATIONS, LABOR MARKETS, LABOR PRODUCTIVITY, LABOR REGULATION, LABOR REGULATIONS, LABOUR, LABOUR MARKET, LABOUR MARKET REGULATION, LAWS, LEGISLATION, LENDING DECISIONS, LICENSING, LINES OF CREDIT, MACROECONOMICS, MANUFACTURING INDUSTRIES, MARKET LIBERALIZATION, MERCHANTS, MIGRATION, MULTIPLIER EFFECT, NATIONALIZED BANKS, NEW BUSINESSES, OUTPUTS, PLANT SIZE, PRIVATE BANKS, PRIVATE CREDIT, PRIVATE EQUITY, PRIVATE SECTOR, PRIVATE SECTOR BANKS, PRODUCT MARKETS, PRODUCTION PROCESS, PRODUCTIVITY, PROFITABILITY, REGIONAL RURAL BANKS, RESERVE BANK OF INDIA, RIGID LABOR MARKET, SIZE OF FIRMS, SMALL BUSINESS, SMALL BUSINESS FINANCE, SMALL ENTERPRISES, SMALL FIRM, SMALL FIRMS, SOCIAL BANKING, SOCIAL CAPITAL, STATE OWNED BANKS, STOCK MARKETS, TRADE REFORMS, TRANSPORT, UNEMPLOYMENT, UNION, UNPAID FAMILY WORKERS, URBAN AREAS, VILLAGES, WAGES, WATER SUPPLY, WORKER, WORKERS,
Online Access:	http://documents.worldbank.org/curated/en/2014/08/20132223/local-financial-development-matter-firm-lifecycle-india https://hdl.handle.net/10986/20349
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