Bank funding and firm investment in underdeveloped financial markets: evidence from India

This paper highlights the importance of banking institutions in underdeveloped financial markets. Using the concept of external dependence of firms developed in the literature, the paper examines the importance of funds from development banks in India for firm investment. Results indicate that funds from development banks are particularly important for firms with high level of external dependence for funds. It highlights why regulatory reforms related to banking institutions may have adverse implications for firm investment in under-developed financial markets.