STOCK MARKETS, FIRM FINANCE AND ECONOMIC DEVELOPMENT:

Stock market activity and economic development are correlated internationally, but stock markets can only contribute to growth when firms begin to seek external equity. The present study examines this decision with reference to IPO prospectus evidence of Indian firms during the most recent period of market strength. The analysis reveals comparatively large issues that were probably greater than firms would have chosen if loan markets had been operating efficiently. The more general development gain of stock markets suggested by the analysis is that equity permits investment finance to be raised on terms seen by firm owners as being more favourable. JEL Classification G 32, O1