Abstract
This study evaluates the impact of financial reforms on the corporate financing decisions of 23 Indian industries for the period 1989-2005. We argue that the impact will be industry-specific because the regulatory and financial framework in which industries operate differs across industries. This paper uses a financial reforms index that will allow a better understanding of the impact of gradual financial reforms on corporate financing decisions. Our findings, obtained using the pooled regression technique, indicate that majority of the industries experienced a negative impact of financial reforms on their leverage ratio; however, a significant difference is observed in the manner these industries reacted to counter this negative impact. The decline in leverage was offset by a corresponding increase in external equity proportion in case of a few industries and by an appreciation in internal capital proportion for the rest. Finally, our results do not support the hypothesis that interest rate is the main route through which the impact of macro-level financial reforms is experienced at the micro-level.
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