Financial Leverage is an influential economic determinant of firm investment decisions. The paper is based on statistical data from 2, 403 Indian companies during the time period 1995-2021, generating a database of 19,654 company-year data. Electronic Financial Portability and Management (eframe) software is used for accessing the information. Analysis is performed using various non-parametric panel analysis techniques.
An introduction to financial leverage is briefly mentioned, as well as a survey on the evolution of bank supervision in India and implications of supervisory checks and reviews, focusing on reforms in India, China, and the US, focusing mainly on bank supervision in China. A review of the regulatory environment in India, its macroeconomic and financial condition, and issues surrounding the Indian economy is also briefly touched on. The working paper concludes with an analysis of Indian firm investment policies and practices, concentrating on government policy toward capital market risks, identifying suitable sources of risk capital, and recommendations on restructuring commercial loans.
The paper discusses the advantages of flexible instruments, particularly the discount rate decision, allowing centralised banks to intervene more actively in the interest rate decision process. The main focus of the paper is credit risk management, with emphasis on the role of banks in providing credit risk services, and the role of governments and other financial institutions in providing financial risk guidance. The main channels of supervision are the Reserve Bank of India, the Central Banking Board of India, and the National Payments Commission of India. Some other important financial risk channels identified are real time risk management, systemic risk, forward outlook risk, international credit risk, and cross-risk exposure management.
Analysis of financial risk management within the context of firm investment policies highlights differences between firms that are members of the European Economic Area, and those that are not. The differences in supervisory architecture also indicate differences in regulatory treatment of foreign affiliate firms. The differences identified between the UK and the US suggest that future regulatory changes may be more extensive and significant in the future for all European countries, and more significant for euro area countries than for the United States.
A potential change in supervisory architecture of the EU would impact upon bank supervision of international investment banking. The present single supervisory mechanism for the euro area is found to be appropriate and effective for most of the banking organisations examined. The potential impact of a change in the architecture could mean increased access to cross-marketing customers by euro area banks and increased access for non euro area banks into the single market for activities relating to international investment banking. These changes could also impact upon the type of supervision of bank supervisors in euro area countries.
Finally, the last main hypothesis forecasts a growth in firm misvaluation-induced risks associated with equity financing activity. The probability of firms using internal funds as a source of long-term funding (i.e., short-term operations) may decrease because of the existence of a higher degree of regulation of bank financing. This would lead to increased reliance on external sources for short-term funds, with potentially negative implications for the value of the euro (e.g., increasing deflationary pressures). Future research can further address these issues by testing the effects of regulatory change on various measures of value creation in the euro area economy.