Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

Sasidharan, Subash; Padmaja, M.

doi:10.1162/adev_a_00107

Cited by 14 publications

(8 citation statements)

References 60 publications

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“…Another highlight of this paper is that it not only documents the adverse effect of economic uncertainty on financing constraints, but also highlights some of the factors that can be improved to mitigate this impact. The findings of this paper are important because financing constraints have become the main obstacle that restricts firms' growth activities, such as research and development and investments (Sasidharan and Padmaja, 2018; Howell, 2016). The consequences of financial constraints amplify in developing markets already impeded by the dearth of capital and extremely strict credit policies.…”

Section: Introductionmentioning

confidence: 91%

The nexus between economic policy uncertainty and access to finance: a study of developing countries

Farooq

Jabbouri

Naili

2023

IJMF

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PurposeThis paper attempts to document the effect of economic uncertainty on financing constraints faced by private firms.Design/methodology/approachOrdered logistic regression is used to analyze the data of private firms from 101 developing countries. The data was provided by the World Bank's Enterprise Surveys and was gathered during the period between 2006 and 2019.FindingsThe findings show that firms headquartered in countries with high economic uncertainty face more financing constraints than firms headquartered in countries with low economic uncertainty. The authors argue that the increase in economic uncertainty allows capital providers to adjust their lending decisions by reducing the provision of capital to firms. The paper also shows that firms headquartered in countries with strong institutional infrastructure and well-functioning firms are less likely to be affected by economic uncertainty while accessing finance.Practical implicationsThe findings would help managers, investors, regulators, and policymakers better understand the implication of economic policy uncertainty on the real economy. This study also sheds the light on the importance of minimizing volatility, ambiguity, and randomness in governmental decisions and policies. Regardless of the pertinence of these policies, arbitrariness surrounding their development and communication can limit their effectiveness and produce unwanted effects.Originality/valueThis paper is closely related to prior literature that documents the behavior of credit providers and investors (the supply side) during the periods of economic uncertainty. The authors differ from this strand of literature by taking the perspective of firms – the demand side.

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Section: Introductionmentioning

confidence: 91%

The nexus between economic policy uncertainty and access to finance: a study of developing countries

Farooq

Jabbouri

Naili

2023

IJMF

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“…Brazil and India are two such countries where recent policy changes and economic growth have generated surplus wealth and the recognition of business and educational opportunities abroad. In fact, since pursuing economic reform in the latter half of the 1990s, Brazil and India have become two of the leading sources of outward FDI among developing nations (Athukorala, 2009; Tomio & Amal, 2015).…”

Section: Literature Reviewmentioning

confidence: 99%

Outward foreign investment by transnational entrepreneurs: Insights from emerging economies

Pittz

2023

Thunderbird Intl Bus Rev

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This research considers how transnational entrepreneurs in emerging economies identify and develop opportunities for investment into international ventures. Specifically, this study seeks to identify common drivers for outward investment by transnational entrepreneurs from their country of origin (Brazil and India) to their adopted country (the US). Findings indicate three common drivers of this type of internationalization: formal education, effectual logic, and the leveraging of perceived market differences. Furthermore, the data show that entrepreneurs prefer a gradual process of investment rather than a large‐scale initial investment during the exploitation of international opportunities in the adopted country. The results of this study have important practical implications and are valuable additions to the scholarly understanding of the growing field of transnational entrepreneurship.

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“…A considerable amount of research effort has been directed toward the link between an open account and exports in the theoretical and empirical literature, demonstrating that an open account positively influences extensive and intensive export (Fisman & Love, 2003), especially in financially-constrained firms. The role of financial constraints is well-documented in the literature on export decisions (Bellone et al, 2010;Qasim et al, 2021), investment decisions (Buch et al, 2014;Danzman, 2020;Sasidharan & Padmaja, 2018), global value chain participation (Reddy & Sasidharan, 2021), R&D activities (Howell, 2016), and trade credit usage (Altaf, 2020;Baker et al, 2020). In this vein, an open account serves as a quality signal that assists in reducing financial constraints.…”

Section: Introductionmentioning

confidence: 99%

Open account, import decision and financial constraints: A cross‐country firm‐level study

Nguyen

Thang

2022

Int. J Fin Econ

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This paper uses cross‐country firm‐level data to investigate the influence of an open account on import decisions of firms facing financial constraints. In the open account method, buyers pay after shipment. We employ the sector‐location average as an instrumental variable to deal with the endogeneity problem. Our empirical results provide evidence that an open account positively affects import possibility, particularly, in large‐sized financially‐constrained firms. Our findings imply that large‐sized firms possess more bargaining power than small‐ and medium‐sized firms when negotiating payment terms in importing contracts, especially under severe financial constraints. These findings may suggest several vital implications for the import promotion policy.

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Do Financing Constraints Impact Outward Foreign Direct Investment? Evidence from India

Cited by 14 publications

References 60 publications

The nexus between economic policy uncertainty and access to finance: a study of developing countries

The nexus between economic policy uncertainty and access to finance: a study of developing countries

Outward foreign investment by transnational entrepreneurs: Insights from emerging economies

Open account, import decision and financial constraints: A cross‐country firm‐level study

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