Money & Finance

A study on the impact of financial market reforms on investment, financing and governance structures of the publicly traded firms in India

  • Blog Post Date 31 March, 2018
  • IGC Research on India
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This project empirically studies financial benefits of equity market integration at the firm level in emerging economies. It explores the unique setting of public firms cross-listing on a new domestic stock exchange, as a means to enhance their access to capital and overcome market frictions in previously fragmented equity markets. Following the opening of India’s National Stock Exchange in the early 1990s, dual-listed firms increased investment relatively more than their peers which remained listed on the country’s primary market (Bombay Stock Exchange), and this was more pronounced in firms considered financially constrained ex-ante. These results can be explained by larger equity offerings and reduced information asymmetries in raising new capital, subsequent to cross-listing. However, valuations of dual-listed firms which failed to sustain a more liquid trading environment for their shareholders returned to pre-crosslisting levels over time. This evidence suggests that financial liberalisation in emerging markets can enhance firms’ access to capital, but this may not be the most important benefit from shareholders’ perspective.

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