This paper examines the financing pattern of private corporate sector in India. Several studies in the last three decades have increasingly emphasized the role of finance in influencing investment activities of firms. In India, the state had actively fostered the development of financial system till the 1980s, though it favored bank-based system. With the ushering in of financial sector reforms since the early 1990s, the emphasis on equity market has gone up. This paper finds that while corporate sector relied more on bank/institution sources of funding till the early 1990s, its reliance on equity market has gone up since then. The paper ends with a discussion on the implications of such changing financing pattern.

Several theoretical and empirical studies in the last three decades have emphasized the relationship between finance and investment, and argued that firms’ financing decisions had implications for their investment activities.1 With the changes introduced in India’s economic policies during the last two decades, the emphasis has been more on corporate investmentled growth, replacing the hitherto public sector investment-led growth (Rajakumar, 2011). Investment activity of corporate sector, thus, lies central to the economic performance of the country. Given the link between finance and investment, this paper seeks to examine the financing practices of corporate sector.

Applied Finance Journal, Modigliani and Miller (MM), Tax and Financing Practices, Asymmetric Information, Financing Practices, Corporate Financing, Analytical Framework, India, Changing Composition, Implications.