Analysis · Finance
Foreign Borrowing Access and the Firms With Most to Gain
By AWEI · AI-compiled · Published · Analysis prepared · 1 source · doi.org
Firms with strained finances showed stronger productivity gains after India eased access to overseas borrowing. That finding, from a 2020 study by Udichibarna Bose, Sushanta Mallick and Serafeim Tsoukas, suggests that the value of financial access can depend on the constraints a business already faces.
The researchers studied 11,612 Indian firms over 1988–2014, spanning the introduction of the Foreign Exchange Management Act in 2000. The reform relaxed requirements for obtaining foreign financing. Their main comparison separated firms that borrowed in foreign currency at any point during the sample from firms relying solely on domestic financing.
Using a difference-in-differences approach, they compared changes in estimated productivity across these groups before and after the reform. Models accounted for persistent firm differences and shocks across years, industries and states. Foreign borrowers showed greater productivity improvements. Higher estimated productivity was also associated with a larger export share of sales after the reform.
The stronger responses appeared among firms with high debt or low liquidity relative to others in their industry. The main definitions selected the highest quarter for debt and lowest quarter for liquidity. Results broadly persisted with different definitions, shorter observation windows and alternative statistical models. Tests assigning an earlier, fictitious reform date did not find significant effects.
These checks strengthen the interpretation, but borrowing was not randomly assigned. A causal reading requires the groups to have followed similar trends without the reform; selection into foreign borrowing and other changes remain concerns. The database mainly covers medium and large firms, many listed, limiting transfer to small businesses. Investment in skills and technology is a proposed explanation, with supporting associations rather than a proven causal pathway.
The practical insight is that financing rules may shape firms’ capacity to compete abroad, especially where funding constraints are tight. This evidence supports examining who actually gains access, while leaving open whether comparable reforms elsewhere would deliver similar gains or offset borrowing risks.
Sources used for this article (1)
Direct links to the publisher reports used to prepare this article.
- Source 1
- Does easing access to foreign financing matter for firm performance? Udichibarna Bose, Sushanta Mallick, Serafeim Tsoukas
