Date of Award

Fall 12-2018

Degree Type


Degree Name


Degree Program

Financial Economics


Economics and Finance

Major Professor

Mukherjee, Tarun; Krishnaswami, Sudha

Second Advisor

Lane, Walter

Third Advisor

Zirek, Duygu


The higher the level of information asymmetry between a firm and its investors, the higher is the firm’s reluctance to raise money externally, potentially leading to investment distortions. An improved disclosure system reduces information asymmetry and therefore, lessens the adverse selection effects of external financing, thereby moderating investment inefficiencies. In this paper, we examine the impact of potentially improved transparency stemming from stricter disclosure requirements (Clause 49) on financing and investment decisions of Indian firms. The results show that reliance of Indian firms on internal financing in the pre-reform period gives way to greater use of external financing in the post-reform period, and alleviation in financial constraints. While expanded funding sources do not seem to improve investment unambiguously, firms that suffered under-investment prior to the reform show a significant improvement in investment post-reform. Firms also increase their financial slack making it possible for them to engage in acquisitions within India as well as abroad.


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