Corporate finance in emerging markets is a complex field for managers and academics. Most of the models used in investments and corporate finance have been developed under the assumption of at least moderately efficient markets, but this assumption seems to be questionable when moving to less developed markets. Emerging markets are not efficient markets; they are characterized by higher information asymmetries, higher transaction costs, more concentrated ownership, lack of market development, relatively low market liquidity, etc. Additionally, there are relevant differences in terms of suitability for the use of standard corporate finance techniques in the context of small and ...view middle of the document...
However, data suggests that despite their growth potential, SMEs in India do not typically grow to become large companies as is the case in developed economies.
The lack of growth of SMEs in India is seen as a serious hindrance to job creation, social mobility and poverty elimination. Lack of access to efficient and adequately structured financial services has been identified as one of the primary impediments to the growth of SMEs. Other constraints to firm growth include regulatory and legal constraints, limited access to (well trained) employees as well as lack of infrastructure. SEFC aims to serve the SME sector by studying best practices and designing robust mechanisms that ameliorate or circumvent obstacles to firm-growth within this critical sector of the economy.
Issues and some advantages of SME
They are unable to capture market opportunities, which require large production facilities and thus could not achieve economies of scale, homogenous standards and regular supply. They are experiencing difficulties in purchase of inputs such as raw materials, machinery and equipments, finance, consulting services, new technology, highly skilled labor etc. Small size hinders the internalization of functions such as market research, market intelligence, supply chain, technology innovation, training, and division of labor that impedes productivity.
The following are the advantages of SME:
• Their size
• Their comparatively high labor-capital ratio
• Need a shorter gestation period
• Focus on relatively smaller markets
• Need lower investments
• Ensure a more equitable distribution of national income
• facilitate an effective mobilization of resources of capital and skills which might otherwise remain unutilized and
• Stimulate the growth of industrial entrepreneurship.
The data for this study is analyzed by studying four different companies. We have broadly identified the five actors: Investment decisions, Capital Structure, Cost of Capital, Working Capital, dividend policy which influence the Corporate Finance Objective Functions
We then tried to identify how these factors play a major in the financial practices of the firm.
The general order of analysis and the sequence of steps is listed below:
• We begin by clearly defining the profile of the four companies’.
• This is followed by briefly stating the status quo on the above roles.
• Then the below five verticals are analyzed in detail
Data on capital budgeting is gathered using six different questions that provide data related to factors effecting new investment decisions, cash flow significance, project evaluation technique, risk assessment and also capital rationing methods.
Cost of Capital
Data on cost of capital is gathered using ten different questions that provide data related to various factors like sources of data for calculation of cost of capital, equity cost of capital, debt cost of capital and type of weightage...