Date of Submission


Date of Award


Institute Name (Publisher)

Indian Statistical Institute

Document Type

Doctoral Thesis

Degree Name

Doctor of Philosophy

Subject Name

Quantitative Economics


Theoretical Statistics and Mathematics Unit (TSMU-Kolkata)


Gangopadhyay, Subhasis

Abstract (Summary of the Work)

This thesis comprises of three essays in corporate finance focusing on the Indian economy. The first essay contains a theoretical model while the second and the third essays are empirical exercises. In the subsequent paragraphs of this section, we examine the broader issues to which the contents of the thesis contribute.The past few years have seen rising interest in studies of financial insti- tutions and corporate financial policies in countries other than the United States. One of the reasons for such a shift in attention is the diversity in the size and structure of financial arrangements all over the world. There are significant differences in methods of raising finance for corporate invest- ment and in the institutional mechanisms that ensure the proper return to the suppliers of finance. As a result, there is a fast growing literature on cross-country comparisons as also on studying specific economies and issues peculiar to them. While the former have the advantage of a broad coverage and rich comparative resuits, the sheer breadth required of such work makes them gloss over the (possibly interesting) differences between various coun- tries. Individuai country studies help fill up this gap by focusing on issues particular to an economy. They attempt to highlight the differences that get obfuscated in the cross-country studies or examine the impact of institutional changes in individual countries.The three essays in this dissertation fall in the latter category with the focus on one developing economy India. India has an established stock market with the largest number of listed firms. However, the institutional setup is characterized by high degree of governmental intervention. In 1991, the government undertook a programme of econonic and financial liberal- ization. This has resulted in a number of important measures being imple- mented in various sectors economy. Vis-a-vis financing and governance of the corporate sector, important measures include allowing foreign majority ownership, tighter disclosure norms and regulations regarding insider trad- ing and takeovers. Such a state of transition with frequent institutional changes makes the study of the Indian corporate finance an interesting area. The first essay in the dissertation is in the area of law and finance. We ex- amine a specific legal institution relating to the way firms could be taken over. The second essay looks at the impact of inside ownership on corporate value. This is closely connected to the issues addressed in the law and finance literature. The final essay examines the impact of credit rating information on the stock market investors.Recent cross country work has established the importance of the legal institutions and their enforcement in explaining differences in important fea- tures of capital markets across the workd. La Porta et. al [41] demonstrate that the nature and effectiveness of the financial system across countries is a function of investor protection against expropriation by insiders. They further show that in countries with poor investor protection laws even the largest corporations have controlling shareholders who are capable of expro- priation.2Our first essay focuses one particular method of increasing stake in a firm. This is called a preferential ullotment of equity. Described as "legally sanctioned price rigging, the use of this method became a topic of debate in the early nineties when a number of foreign multinational corporations used this method to acquire majority stakes in and control of their Indian subsidiaries. It was widely regarded as being detrimental to the interests of the small outside shareholders. We examine how this method worked and why it was chosen over other methods by multinationals.


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