Liberalisation, the stock market and the market for corporate control: a bridge too far for the Indian economy?

Singh, Ajit (1998): Liberalisation, the stock market and the market for corporate control: a bridge too far for the Indian economy? Published in: Ahulwalia, I.J., and Little, I.M.D. (eds.), India’s Economic Reform and Development, Oxford University Press, New Delhi (1998): pp. 169-196.

Abstract

Abstract

An outstanding development of the 1990s, closely associated with the economic reform programme initiated by Dr Manmohan Singh, has been the very fast expansion of the stockmarkets and their growing role in the Indian economy. Both internal and external liberalisation measures, undertaken as a part of the financial reform, as well as the more liberal general economic ethos created by the reform, have largely been responsible for this evolution. The first part of this paper reviews the stockmarket reforms and comments on the available evidence on the effects of stockmarket expansion on corporate growth and on the real economy. The second part focuses on the proposed next stage of the reform, being urged by the financial community. Their specific proposal is to establish a market for corporate control in order to maximise the benefits from stockmarket development. The government has recently published a Takeover Code which suggests that it is not at least opposed to the evolution of such a market.

• Item Type: MPRA Paper
• Language: English
• Keywords: stock market, reforms, Indian economy, Takeover Code, corporate control
• Subjects: F - International Economics > F6 - Economic Impacts of Globalization; G - Financial Economics > G0 - General; G - Financial Economics > G3 - Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development

References

References:

Abeggeln, J. C., and Stalk, G. C., (1985), The Japanese Corporation, Basic Books Inc., New York.

Amsden, A. and Hikino, T. (1994), "Project Execution Capability, Organizational Know-How, and Conglomerate Corporate Growth in Late Industrialization", Industrial and Corporate Change, v. 3.

Balasubramanian, N. (1993), Corporate Financial Policies and Shareholders Returns - The Indian Experience, Bombay: Himalaya Publishing House.

Baumol, W. J. (1965), The Stock Market and Economic Efficiency, New York.

Baumol, W. J.; Heim, P.; Malkiel, B. G.; and Quandt, R.E. (1970), "Earnings Retention, New Capital and the Growth of the Firm", Review of Economics and Statistics, November, n.52, pp. 345-55.

Blaine, M., (1993), "Profitability and Competitiveness: Lessons from Japanese and American firms in the 1980s", California Management Review, No. 36, pp.48-74.

Charkham, J. (1989), "Corporate governance and the market for control of companies", Bank of England Panel Paper No. 25, March.

Cobham, D. and Subramaniam, R. (1995), "Corporate Finance in Developing Countries: New Evidence for India", CRIEFF Discussion Paper Series, n. 9512, University of St. Andrews, Scotland.

Corbett, J. and T. Jenkinson (1994), "The Financing of Industry, 1970-89: An International Comparison." Discussion Paper No. 948. London: Centre for Economic Policy Research.

Cosh, A. D., Hughes, A.; and Singh, A. (1980), "The Causes and Effects of Takeovers in the UK: an Empirical Investigation for the late 1960s at the Micro-Economic Level", in D. C. Mueller (ed.) The Determination and Effects of Mergers, Cambridge, Mass., Oelschlager, Gunn and Hain.

Cosh, A.D.; Hughes, A.; Lee, K. and Singh, A. (1989), "Institutional Investment, Mergers and the Market for Corporate Control", International Journal of Industrial Organisation, March, pp. 73-100.

Cosh, A. D.; Hughes, A.; Lee, K. and Singh, A. (1996), "Takeovers, Institutional Investment and the Persistence of Profits", ESRC Working Papers, n. 30, March, University of Cambridge.

El-Erian, M.A. and Kumar, M.S. (1995), "Emerging equity markets in Middle Eastern countries." Paper presented at the World Bank Conference on Stock Markets, Corporate Finance and Economic Growth, Washington, DC, February 16/17.

Franks, J., Harris, R. S., and Mayer, C., (1988)"Means of Payment in Takeover: Results for the United Kingdom and the United States" in Auerbach (ed.) (1988).Corporate Takeovers: Causes and Consequences, National Bureau of Economic Research, University of Chicago Press.

Greer, D. F. (1986), "Acquiring in order to avoid acquisition", Antitrust Bulletin, Spring: 155-85.

Grossman, S. J. and Hart, O. D. (1980), "Takeover bids, the Free-Rider Problem and the Theory of the Corporation", Bell Journal of Economics, 11, pp. 42-64.

Helm, D. (1989), "Mergers, Takeovers and the Enforcement of Profit Maximisation",in Faiburn, J. and Kay, J. A. (eds.) Mergers and Merger Policy, Oxford.

Hughes, A. (1991), "Mergers and Economic Performance in the UK: A Survey of the Empirical Evidence 1950-1990" in Fairburn, J. and Kay, J.A. (eds.) Mergers and Merger Policy, Oxford. (Second edition).

IFC (1996), Emerging Stock Markets Factbook 1996, Washington D.C.:IFC.

Jensen, M. C. (1988), "Takeovers: Their Causes and Consequences", Journal of Economic Perspective, v. 3, n. 2, (Winter), pp. 21-48.

Joshi, V. and Little, I. M. D. (1996), India's Economic Reforms 1991-2001. Oxford: Clarendon Press.

Kojima, K., (1995) "An international perspective on Japanese corporate finance", RIEB Kobe University Discussion Paper No. 45, March.

Marris, R. and Mueller, D. (1980), "The Corporation, Competition and the Invisible Hand", Journal of Economic Literature, n. 18.

Mayer, C. P. (1990), "Financial Systems, Corporate Finance and Economic Development", R. Glen Hubbard (ed.), Asymmetric Information, Corporate Finance and Investment, Chicago: The University of Chicago Press.

Mayya, M. R. (1993), Indian Stock Markets: Problems, Prospects and Prescriptions, Bombay Stock Exchange, Bombay.

Mayya, M. R. (1995), Reflections on the Changing Scenario of the Indian Stock Markets. Bombay: The A. D. Shroff Memorial Trust.

Meeks, G. (1979), Disappointing Marriage: a Study of the Gains from Merger, Cambridge: Cambridge University Press.

Meeks, G. and Whittington, G.(1975), "Giant companies in the United Kingdom 1948-69." Economic Journal, Vol. 85, pp. 824-843.

Mueller, D. C. (ed.) (1980), The Determination and Effects of Mergers, Cambridge, Mass., Oelschlager, Gunn and Hain.

Mueller, D. C. (1992), "The Corporation and the Economist", International Journal of Industrial Organization, v. 10, June.

Mullins, J. (1993), "Emerging equity markets in the global economy." FRBNY Quarterly Review, Summer, pp. 54-83.

Myers, S.C. and Majluf, N.S.(1984), "Corporate financing and investment decisions when firms have information that investors do not have." Journal of Financial Economics, Vol. 13, pp. 187-221.

Nagaraj, R. (1996), "India's Capital Market Growth: Trends, Explanations and Evidence." Mimeo. New Delhi: Indira Gandhi Institute of Development Research.

Odagiri, H. (1994), Growth through competition, Competition through growth, Clarendon Press, Oxford.

Odagiri, H. and Hess, T. (1989) "Are Mergers and Acquisitions Going to be Popular in Japan too? An Empirical Study", International Journal of Industrial Organization, v. 7, n. 1, (March), pp. 49-72.

Peacock, A. and Bannock, G. (1991), Corporate Takeovers and the Public Interest, Aberdeen University Press for the David Hume Institute.

Porter, M. E., (1992), "Capital Disadvantage: America's Failing Capital Investment System", Harvard Business Review, September-October, pp.65-82.

Prais, S. J. (1976), The Evolution of Giant Firms in Britain, Cambridge University Press, Cambridge.

Ravenscraft, D. J. and Scherer, F. M. (1987), Mergers, Sell-Offs and Economic Efficiency, Washington D.C.: Brookings Institution.

Reserve Bank of India (1995), Report on Currency and Finance 1994-1995, Bombay.

Ruback, S. R., (1988) "Comment" on J. R. Franks, R. S. Harris and C. Mayer, "Means of Payment in Takeovers", in Auerbach (1988) Ibid. Schwarz, S. (1982), "Factors Affecting the Probability of Being Acquired: Evidence for the United States", Economic Journal, v. 92, June.

Shleifer, A, and Summers, L. H. (1988), "Breach of Trust in Hostile Takeovers", in Auerbach, A. J. (ed.) Corporate Takeovers: Causes and Consequences, National Bureau of Economic Research, University of Chicago Press.

Shleifer, A. and Vishny, R. W. (1996), "A Survey of Corporate Governance", NBER Working Paper Series, n. 5554.

Singh, A. (1971), Take-overs, Their Relevance to the Stock Market and the Theory of the Firm, Cambridge: Cambridge University Press.

Singh, A. (1975), "Take-overs, Economic Natural Selection and the Theory of the Firm", Economic Journal, September.

Singh, A. (1992), "Corporate takeovers." The New Palgrave Dictionary of Money and Finance (ed. J. Eatwell, M. Milgate and P. Newman). London: Macmillan, pp. 480-486.

Singh, A. (1993a), "Regulation of Mergers: a New Agenda", in Roger Sugden (ed.), Industrial Economic Regulation: A framework and exploration, Routledge, London, pp. 141-158.

Singh, A. (1993b), "The stock market and economic development: Should developing countries encourage stock markets?", UNCTAD Review, No 4. pp.1-28.

Singh, A. (1994), "How do Large Corporations in Developing Countries Finance their Growth?" In The AMEX Bank Prize Essays: Finance and the International Economy, 8 (ed. Richard O'Brien). New York: Oxford University Press. pp.121-135.

Singh, A. (1995a) Corporate Financial Patterns in Industrialising Economies: a comparative international study. IFC Technical Paper No.2. Washington, DC: The World Bank.

Singh, A. (1995b), "The anglo-saxon market for corporate control, the financial system and international competitiveness." University of Cambridge, Department of Applied Economics Working Paper, No AF16, March.

Singh, A. (1996a), "Liberalisation and Globalisation: An unhealthy euphoria." In Full Employment without Inflation (ed. J. Michie and J. Grieve Smith). Oxford: Oxford University Press, (forthcoming).

Singh, A. (1996b), "Savings, Investment and the corporation in the East Asian Miracle", UNCTAD Discussion Paper on East Asian Development: Lessons for a New Global Environment, Study No 9, Geneva.

Singh, A. (1997a), "The Stock Market, the Financing of Corporate Growth and Indian Industrial Development", Journal of International Finance, (forthcoming).

Singh, A. (1997b), "Financial Liberalisation, Stock Markets and Economic Development", Economic Journal, May (forthcoming).

Singh, A. and Hamid, J. (1992) Corporate Financial Structures in Developing Countries, IFC Technical Paper No. 1. Washington, DC: The World Bank.

Stein, J. C. (1989), "Efficient Stockmarkets, Inefficient Firms: a Model of Myopic Corporate Behaviour", Quarterly Journal of Economics, November, 1989, v. 104, pp. 665-70.

Tirole, J. (1991), "Privatisation in Eastern Europe: Incentives and the Economics of Transition."In NBER Macroeconomics Annual 1991 (ed. O.J. Blanchard and S.S. Fischer). Cambridge, Ma.: The MIT Press.

Warhawsky, M. J, (1987), "Determinants of Corporate Merger Activity: a Review of the Literature", summarised in Federal Reserve Bulletin, April.

Whittington, G,; Saporta, V. and Singh, A. (1996), "The Effects of Hyper-Inflation on Accounting Ratios: Financing of Corporate Growth in Industrialising Economies", Cambridge Discussion Papers in Accounting and Finance, AF 32, December, University of Cambridge.

World Bank (1989), World Development Report 1989. New York: Oxford University Press.