FINANCE MANAGEMENT PROJECT ON

“ SOURCES OF LONG TERM FINANCE ”

Submitted in Partial Fulfillment for the requirement of

MMS degree to University of Mumbai

Submitted by:
Surya Suresh

MMS (Finance )
(Roll No.9111)

Research Guide:
( Prof. Sanjiv Joshi )

Batch:-2018-2020

1
 DECLARATION BY STUDENT

I, Surya Suresh, hereby declare that the work presented herein is

original work done by me and has not been published or

submitted elsewhere for the requirement of a degree programme.

Any literature date or work done by other and cited within this

thesis has given due acknowledgement and listed in the reference

section.

Ms. Surya Suresh (Student Signature)

Place: Swayam Siddhi College of Management and Research

Date: 15 March 2020

2
 CERTIFICATE

Certified that the Corporate Social Responsibility Project Report, entitled

“Sources of Long Term Finance” submitted by Ms. Surya Suresh towards

partial fulfillment for the Master of Management Studies is based on the

investigation carried out under our guidance. The project part therefore has

not submitted for the academic award of any other university or institution.

Name of Student: Surya Suresh

Prof. Sanjiv Joshi

Project Guide.

Dr./Prof.Ginlianlal Bhuril
Director.

Place: Swayam Siddhi College of Management and Research

Date: 15 March 2020

3
 ACKNOWLEDGEMENT

I would like to express my sincere gratitude to Prof. Sanjiv Joshi,

Associate/Assistant Professor, and Head of Department of Finance for

allowing me to undertake this work and for his continuous guidance advice

effort and irrevertible suggestion throughout the Project.

My utmost gratitude to Dr. Ginlianlal Bhuril Director, Swayam Siddhi

College of Management and Research, University of Mumbai, without their

continuous support this study would not have been possible.

I would also like to thank my friends of Master of Management Studies

Batch 2018-2020 of Human Resource / Marketing / Finance / Operation /

Information Technology for there help throughout the study.

Lastly I would like to express my sincere appreciation to my parents for

encouraging and supporting me throughout the study.

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 TABLE OF CONTENTS

Sr. No CHAPTER
1 Introduction
2 Conceptual Framework
3 Review of Literature
4 Conclusion and Findings
5 Bibliography & References

5
 CHAPTER I
INTRODUCTION

1.1 Introduction

1.2 Problem Statement

1.3 Objectives of the Study

1.4 Scope of the Study

1.5 Research Methodology

6
 1.1 INTRODUCTION

This chapter provides an overview of the various sources from where funds

can be procured for starting as also for running a business. It also discusses

the advantages and limitations of various sources and points out the factors

that determine the choice of a suitable source of business finance. It is

important for any person who wants to start a business to know about the

different sources from where money can be raised. It is also important to

know the relative merits and demerits of different sources so that choice of

an appropriate source can be made.

Business is concerned with the production and distribution of goods and

services for the satisfaction of needs of society. For carrying out various

activities, business requires money. Finance, therefore, is called the life

blood of any business. The requirements of funds by business to carry out its

various activities is called business finance. A business cannot function

unless adequate funds are made available to it. The initial capital contributed

by the entrepreneur is not always sufficient to take care of all financial

requirements of the business. A business person, therefore, has to look for

different other sources from where the need for funds can be met. A clear

assessment of the financial needs and the identification of various sources of

finance, therefore, is a significant aspect of running a business organisation.

The need for funds arises from the stage when an entrepreneur makes a

decision to start a business. Some funds are needed immediately say for the

7
purchase of plant and machinery, furniture, and other fixed assets. Similarly,

some funds are required for day-to-day operations, say to purchase raw

materials, pay salaries to employees, etc. Also when the business expands, it

needs funds.

Capital market provides the resources needed by medium and large scale

industries for investment purposes. Unlike the money market which deals

with short term sources of funds or which provides working capital resources,

capital market deals in long term sources of funds. The long term sources, in

this context mean the sources of funds the term for which is more than one

year. Thus, capital market functions as an institution which channelizes the

savings into investment. It serves as medium to bring together

entrepreneurs, initiating activity involving huge financial resources on

the one hand and savers, individuals or institutions, seeking outlets for

investments, on the other.

The capital market consists of the primary markets and the secondary

markets with a close link between them. The primary market creates long

term instruments through which corporate entities borrow from the capital

market, but the secondary market is the one, which provides liquidity to

these instruments. These (primary and secondary) markets interact with each

other, if secondary market is active and/or buoyant. The term capital market

also includes, apart from the primary and secondary market, term lending

8
institutions, banks and investors. It also includes everybody and anybody

who is engaged in providing long term capital to various sectors.

1.2 PROBLEM STATEMENT

In India, the history of capital markets dates back to more than 130 years.

The inception of capital markets in India was caused by the establishment of

the Stock Exchange, Mumbai (Popularly known as BSE) in 1875. For more

than 100 years of its inception, the capital market was considered as a place

for elite group only. It was not seen as a factor, which can mobilize the

saving into investment till recent decades. But, the increasing capital

requirements of the economic system have induced common man to be

aware of the development and working of capital markets.

Firstly, it is now being emphasized that capital market is not meant only for

private corporate entities to raise their funds, but it can mobilize the

household savings and such small savings, collectively can be put to use

more efficiently, through the capital market. Now even the governments

have also realized that in the area of public sector, capital market may act as

the key factor in raising finance from various sources. Keeping all these

considerations in mind, this topic has been chosen for the present study.

Secondly, the capital market has, from research point of view so for

remained less touched. The common man has also a fear about the capital

market in his mind. Hence, the present study is an attempt to remove the

9
myths and misconceptions about the capital market and this would, in turn

facilitate a better understanding about the markets for the common man.

1.3 OBJECTIVES OF THE STUDY

1. To know what is Long Term Finance.

2. To know the uses of Long Term Finance.
3. To know the advantages and limitations of Long Term Finance.
4. To know the Sources of Long Term Finance.

1.4 SCOPE OF THE STUDY

The scope of the study is to understand the sources of Long term finance, its
advantages, limitations and its uses.

1.5 RESEARCH METHODOLOGY

 Books
 Magazines
 Journals
 Internet Sites

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 CHAPTER -2

CONCEPTUAL FRAMEWORK

2.1 Introduction

2.2 Long Term Financing Definition

2.3 Advantages of Long Term Financing

2.4 Limitations of Long Term Financing

2.5 Sources of Long Term Financing

11
2.1 INTRODUCTION

Long-term financing plays an important part in calming the markets and thus
ensuring the stability of economies. The German market for residential real
estate financing provides an impressive example of this. However, new
financial market regulations such as Basel III and Solvency II will cause the
market for long-term financing to contract, as banks will be incentivised to
grant more short-term loans. Other financial intermediaries such as insurance
companies or funds are unlikely to be able to close this gap. Although
alternative financial intermediaries will increase their lending due to
advantages in regulation, they will be unable to eliminate the shortage of
long-term financing, owing to a lack of experience and incentives. The
regulatory framework must therefore be adapted to make the banking sector
more robust while simultaneously allowing it to continue to fulfil its original
economic functions.

Lack of adequate long-term financing has become an important and

challenging issue in many developing economies, particularly since the
global financial crisis of 2017-18 . Having access to long-term funds is
critical because it can allow governments and firms to finance large long-
term investments as well as to reduce rollover risks and the potential for runs.
Moreover, there is vast evidence that short-termism has contributed to
several well-known financial crises in both developing and high-income
economies .

As a consequence, several reports and studies have emphasized the need for
long-term finance. The World Bank Global Financial Development Report
2015 examines evidence of the use and economic impact of long term-
finance with the goal of identifying those policies that help to promote it and
those that do not (World Bank, 2015). Likewise, the OECD issued a set of
principles to facilitate and promote long-term investment by institutional

12
investors (OECD, 2013). Also, the Financial Stability Board (FSB)
highlights the impact that recent regulatory reforms (including, Basel III and
derivatives markets reforms, among others) could have on the provision of
long-term finance (FSB, 2013). Furthermore, the Restarting European Long
Term Investment Finance Program (RELTIF) has argued that SMEs in
Europe have a shortage of long term finance and puts forward key policy
questions to address this issue .

But long-term financing is not necessarily desirable in all situations. In fact,

this type of financing can be best understood as arising from a trade-off
between creditors and debtors in the allocation of risk. Long-term finance
shifts risk to the providers of funds because they have to bear the
fluctuations in the probability of default and the loss in the event of default,
along with other changing conditions in financial markets, such as interest
rate volatility. In contrast, short-term finance shifts risk to the users of credit
because it forces them to refinance their debt repeatedly.

Therefore, long-term debt might be optimal only in some situations.

Users of credit (households, firms, or the government) would prefer long-

term debt if they aim to reduce rollover and interest rate risks. The former is
the risk that credit lines are cancelled or modified at short notice, while the
latter is the risk that interest rates and loan terms are changed at short notice.
Both risks generate economic costs because the mismatch between short-
term financing and long-term investment projects can force their premature
liquidation, which can be socially inefficient and generate losses for the
economy as a whole. In some cases, this mismatch can discourage profitable
investments with a longer time horizon from being undertaken in the first
place.

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Households might prefer long-term finance because it can raise their welfare
by allowing them to smooth their consumption over time and by facilitating
lumpy investments such as housing. Moreover, long-term funds might allow
households to insure against the challenges of retirement, education needs,
health shocks, premature death, or longevity risks. Long-term financing can
be important for firms too, because it enables them to undertake lumpy and
large investments that might be critical for their growth. In the absence of
long-term financing, firms might have to rely on short-term debt, and their
inability to roll over short-term debt might cause a firm to exit or to curtail
profitable long-term investments with consequences for their growth .

But in some other instances users might prefer short-term finance. Firms
tend to match the maturity of their assets and liabilities; hence the faster the
returns to investment are realized, the shorter the optimal payment structure
will be (Hart and Moore, 1995). Thus, long-term loans are usually used to
acquire fixed assets, equipment, and the like while short-term loans, on the
other hand, are preferred for working capital, such as payroll, inventory, and
seasonal imbalances. In addition, a firm or a household that anticipates
improvements in its financial situation might prefer short-term financing
rather than being locked in a longer contract that might not reflect the
medium or long-term prospects. For example, firms with high credit ratings
might prefer short-term debt because it allows them to refinance the terms of
their debt when good news arrives

Households and firms might also prefer short-term contracts if the payoffs
from available investment projects have a similarly short-term horizon or if
the cost of long-term finance is too high.

The benefits of long-term finance can accrue not only to borrowers but also
to providers of funds (savers in the economy) and financial intermediaries
(banks and institutional investors).
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Lenders might be willing to engage in long-term financial contracts because
returns are higher than short-term contracts and because the maturity of these
contracts might match their long-term saving needs. For the economy as a
whole, long-term finance might contribute to higher growth and lower
macroeconomic volatility . In addition, long-term finance is critical for
infrastructure projects, which by nature take many years to complete and
require lumpy investments.

This short paper reviews the recent literature and discusses the degree to
which the use of long-term finance is prevalent in developing economies
(relative to advanced ones) by focusing on the role of the most important
providers of long-term finance: banks, capital markets, and institutional
investors. The paper argues that the use of long-term finance in developing
economies is more limited than in advanced ones. Banks, the most important
source of long-term financing, lend at significantly shorter maturities in
developing economies relative to advanced ones.

Moreover, capital markets in developing economies are less developed and

are accessible only to a small proportion of total firms. Domestic
institutional investors not only have a small participation in developing
economies, but also the incentives they face can lead them to invest short-
term. However, access to international mutual funds can help developing
economies to obtain not only more funds, but also more long-term financing,
as these investors hold longer maturities compared to domestic mutual funds.
The paper ends with a set of policy recommendations that might help
governments to address some of the shortcomings in the provision of long-
term finance in developing economies.

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2.2 Long Term Financing Definition

Long term financing means financing by loan or borrowing for a term of

more than one year by way of issuing equity shares, by the form of debt
financing, by long term loans, leases or bonds and it is done for usually big
projects financing and expansion of company and such long term financing
is generally of high amount.

The fundamental principle of long term finances is to finance the strategic

capital projects of the company or to expand the business operations of the
company.

These funds are normally used for investing in projects that are going to
generate synergies for the company in the future years.

Eg: – A 10-year mortgage or a 20-year lease.

2.3 Advantages of Long Term Financing

a. Align specifically to the long term capital objectives of the company

effectively manages the Asset-Liability position of the organization.

b. Provides long term support to the investor and the company for building
synergies.

c. Opportunity for equity investors to take controlling ownership in the

company.

d. Flexible repayment mechanism

e. Debt diversification

f. Growth & expansion

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2.4 Limitations of Long Term Financing

a. Strict regulations laid down by the regulators for repayment of interest and
principal amount.

b. High gearing on the company which may affect the valuations and future
fund raise

c. Stringent provisions under the IBC Code for non-repayment of the debt
obligations which may lead to bankruptcy.

d. Monitoring the financial covenants in the term sheet is very difficult.

2.5 Top Sources of Long-Term Finance

The sources of long term finance are as follows

1. Share Capital/Share Premium

Share Capital represents the most important source of fund as it represents

the ownership of the organisation. Under normal circumstances, in a new
company the promoter (along with his associates) brings in the fund, makes
some progress on the projects (like, acquisition of space, know-how,
preparation of a project feasibility report, negotiation with banks, financial
institutions etc. for long-term debts) and then invite public for share capital.

SEBI’s guidelines on public issue of share capital:

Companies making issues of Share Capital must observe the ‘guidelines’ as

prescribed by Securities Exchange Board of India (SEBI).

It indicates:

(i) New Company representing one which has not completed 12 months of
commercial operation and audited operative results are not available and set
up by entrepreneurs without a track record can issue capital only at par, i.e.

17
the price per share equals the face value of such share. So, (in such case,
there is) no Share Premium.

(ii) When the new company is set up by an existing company with five year
track record of consistent profitability, it will be free to price its issue
provided the participation of the promoting company is not less than 50% of
the equity of the new company.

(iii) Existing private or closely held company with a three year track record
of consistent profitability shall be permitted to freely price the issue. The
public issue by existing listed companies can raise fresh capital by freely
pricing their further issues.

(iv) Draft prospectus for the issue should be submitted to SEBI before the
public issue. The lead manager to the issue is to verify- the disclosures in the
prospectus and also issue a ‘due diligence’ certificate to SEBI and also to the
Registrar of Companies.

Thus, we find that the ‘Share Premium’, representing the excess of share
price over its face value can be charged only in cases of 2 and 3 above.

SEBI’s guideline, also include:

Condition that the promoters and their associates should not hold:

i. Less than 25% of the total issue up to Rs. 100 crores and

ii. Less than 20% of the total issue above Rs. 100 crores and should bring in
their capital in full before public issue with five-year lock-in period.

In case of PSUs, however, the share capital is provided by the government

Central or State the financial institutions or mutual funds and with the
exception of the government’s recent policy of disinvestment by PSUs the

18
issue of shares to the public is mostly by companies in private or joint
sectors.

The SEBI further amended this guideline for issue of capital at premium for
projects of highly capital intensive and long gestation period with regard to
the promoter’s holding as revised below :

On first Rs. 100 crore issue 50%

On next Rs. 200 crore 40%

On next 300 crore 30%

On balance issue 15%

In order to issue shares to the public, the minimum offer to the public has
been specified at 25%, thus the issuer is free to make reservation and/or firm
allotment up to 75%.

Such limit of 75% which is inclusive of the possible contribution by the

promoter may be reserved for individual category of investors with their
limits as follows:

19
Section 55 to Section 112 of the Companies Act deal with provisions
relevant to Shares.

There are only two types of share:

(1) Preference Share having preferential right in respect of a fixed rate (or
fixed amount) of dividends and in repayment of share capital in case of
winding up of the company;

(2) Ordinary shares representing all other shares which are not preference
share. A new type of share is in the process of being enacted ‘non-voting
shares’ up to 25 per cent of the paid up capital of the company. These shares
will rank, pari passu, as far as payment of dividends and issuance of bonus
and rights offers are concerned.

As a result the promoters can now issue non-voting shares without diluting
their power in the management.

The SEBI’s guidelines, and the provisions- of the Companies Act, are in a
continuous process of changing, as the liberalisation policies with necessary
support services from the government are encouraging the development of
capital market very fast and the dimensions and scales for such guidelines
are also changing to cope up with the developments.

SEBI’s guideline issued in Jan ’95 suggested that 50% of the net public
components of all public issues of shares or convertible debentures would
have to be reserved for investors applying for 1,000 shares or less.

Some of these financial institutions are interrelated as shares in some FI are

held by other FIs.

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The shareholder in IFCI includes:

IDBI, holding 28.63 per cent, of its share capital; and UTI with 2.82 and LIC
with 6.08 per cent of its share capital.

IDBI appoints five representatives to the Board of Trustees responsible for

the management of UTI. There are strong feelings for delinking such
relationship to promote competition.

Summary of approvals of new issue of Share Capital, Debenture and Bonds

during three years ended 31st March 1995 as detailed below will show the
growth in the primary market during the year 1994-95:

Summary of approvals for new issue:

Aggregate assistances of All India Financial Institutions net of inter-

institutional flows were (disbursements)

SEBI’s guideline to public issue of shares debentures appears to be directed

towards development of broader base of the investors as will appear from the
details Of the public issues in April and May 1995. A major feature of the
monetary developments in 1994-95 was the marked growth in broad money
M-3 and also the narrow money M-l.

The growth in monetary developments as detailed above is reflected in the

growth of new issue of Shares and Debentures in 1994-95 with an increase
of 57% in numbers and 75% in value in respect of issues by non-government
public companies over the previous year.

Financial Institutions and mutual funds also contribute towards the Share
Capital and Debentures of the company to facilitate implementation of their
projects. Public issues are also underwritten by Financial Institutions and
Bankers who can provide bridge loans for the unsubscribed part of the issue,

21
if any. During the nine months ended December 1994 the FIs underwritten
199 issues of Rs. 428 crores.

The FIs, through their subsidiaries and/or State Finance Corporation

(FC)/Industrial Development Corporation (IDC) provide seed capital for
small and medium scale projects for the promotion of new technology/new
product by technocrat promoters.

In such cases:

(a) Contribution towards share capital is received from the IDBI’s

subsidiary—Small Industries Development Bank of India (SIDVI) through
their venture capital scheme. The special characteristic for the concerned
project should be innovative in nature and does not qualify for assistance
through conventional route of term financing.

The scheme is encouraging for small scale projects which are new and
untried process and technologies which have scope for commercial
application with characteristics of high risk and high return;

(b) Similar contribution is received through ICICI’s subsidiary Risk Capital

Technology Finance Corporation (RCTC); and

(c) Through Technology Development and Information Co. of India Ltd.

(TDICI), a venture’ capital outfit promoted by UTI and ICICI.

Contributions to Equity and Debentures are also made by LIC, GIC and UTI.
SEBI consultative paper on venture capital funds has suggested investments
in equity or equity related instruments of unlisted companies at any stage of
their projects prior to listing in a stock exchange. It has also commended
investment by Venture Capital Companies in restructuring and revival of
sick and potentially sick companies.

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2. Reserve and Surplus Including Retained Project

A debit balance of. profit and loss account represents losses and, as such, is a
negative to total shareholders’ fund. These items represent internally
generated fund, being one of the sources of project financing and, as such,
can be possible for existing profit earning companies.

3. Government Subsidies for Project Investments

The Central and/or State government provide capital subsidies representing

certain percentage of the project capital cost. These subsidies are retained in
the business as the company’s shareholders’ fund and are not available for
distribution as dividend to the shareholders.

4.Retained Earnings

These are the profits that are been kept aside by the company over a period
of time to meet the future capital needs of the company.

These are free reserves of the company which carries nil cost and are
available free of cost without any interest repayment burden.

It can be safely used for business expansion and growth without taking
additional debt burden and diluting further equity in the business to an
outside investor.

They form part of the net worth and have an impact directly on the equity
share valuation.

Merits

The merits of retained earning as a source of finance are as follows:

(i) Retained earnings is a permanent source of funds available to an

organisation

23
(ii) It does not involve any explicit cost in the form of interest, dividend or
floatation cost

(iii) As the funds are generated internally, there is a greater degree of

operational freedom and flexibility

(iv) It enhances the capacity of the business to absorb unexpected losses

(v) It may lead to increase in the market price of the equity shares of a
company.

Limitations

Retained earning as a source of funds has the following limitations:

(i) Excessive ploughing back may cause dissatisfaction amongst the

shareholders as they would get lower dividends

(ii) It is an uncertain source of funds as the profits of business are fluctuating

(iii) The opportunity cost associated with these funds is not recognised by
many firms. This may lead to sub-optimal use of the funds.

5. Term Loans

They are given generally by banks or financial institutions for more than one
year. They have mostly secured loans given by banks against strong
collaterals provided by the company in the form of land & bldg, machinery,
and other fixed assets.

They are a flexible Source of finance provided by the banks to meet the long
term capital needs of the organization.

They carry a fixed rate of interest and gives the borrower the flexibility to
structure the repayment schedule over the tenure of the loan based upon
the cash flows of the company.

24
It is faster as compared to the issue of equity or preference shares in the
company as there are fewer regulations to abide and less complexity.

6. Debentures

Is a loan taken from the public by issuing debenture certificates under the
common seal of the company? debentures can be placed via public or private
placement. If a company wants to raise money via NCD from the general
public, it takes the debt IPO route where all the public subscribing to it gets
allotted certificates and are creditors of the company. If a company wants to
raise money privately, It may approach the major debt investors in the
market and borrow from them at higher Interest Rates.

They are entitled to a fixed payment of interest as per the agreed upon terms
mentioned In the term sheet.

They do not carry voting rights and are secured against the assets of the
company.

In case of any default in payment of debenture interest, the debenture holders

can sell the assets of the company and recover their dues.

They can be redeemable, irredeemable, convertible and non-convertible.

7. Commercial banks

Banks provide short and medium-term loans to firms of all sizes. The loan is
repaid either in lump sum or in installments. The rate of interest charged by a
bank depends upon factors including the characteristics of the borrowing
firm and the level of interest rates in the economy.

8. Financial institutions

Both central and state governments have established a number of financial

institutions all over the country to provide industrial finance to companies
25
engaged in business. They are also called development banks. This source of
financing is considered suitable when large funds are required for expansion,
reorganisation and modernisation of the enterprise.

Merits

The merits of raising funds through financial institutions are as follows:

(i) Financial institutions provide long term finance, which are not provided
by commercial banks

(ii) Besides providing funds, many of these institutions provide financial,

managerial and technical advice and consultancy to business firms

(iii) Obtaining loan from financial institutions increases the goodwill of the
borrowing company in the capital market. Consequently, such a company
can raise funds easily from other sources as well

(iv) As repayment of loan can be made in easy installments, it does not prove
to be much of a burden on the business

(v) The funds are made available even during periods of depression, when
other sources of finance are not available.

9. International financing

With liberalisation and globalisation of the economy, Indian companies have

started generating funds from international markets. The international
sources from where the funds can be procured include foreign currency loans
from commercial banks, financial assistance provided by international
agencies and development banks, and issue of financial instruments (GDRs/
ADRs/ FCCBs) in international capital markets.

26
 CHAPTER 3

REVIEW OF LITERATURE

3.1 Introduction

3.2 Review of Literature with respect to Sources of Long Tern Finance

27
3.1 INTRODUCTION

The Present study is based, to a large extent, on the secondary data and
library work. A lot of books, documents, journals, research studies, working
papers and reports have been critically studied to identify the land marks in
the history of Indian capital market. This literature has been collected from
various libraries,regulatory authorities and institutions. This has provided the
basis for the entire study. The research already done in the area and the areas
for further study are indicated with the review of literature which is provided
in this fourth chapter

3.2 Review of Literature with respect to Sources of Long Tern Finance

Kakani and Reddy (2008) studied on capital structure have been

concentrated in developed countries; a few of them have been in countries
such as India. Their study provided an empirical examination to the widely
held existing theories on the determinants of corporate capital structure and
their maturity, and attempted to develop and test a new theory on
capital structure for large manufacturing firms in developing economies
such as India. For the different empirical and managerial implications
about different periods o f debt instruments, they analyzed measures of
short-term and long-term debt rather than only an aggregate measure of
total debt. The study also analyzed the empirical implications of
liberalization of Indian economy, on the determinants of capital structure
of the firm. Some of the results were found contrary to the classical
financial theory.

Robert and Susan (2008), finance scholars' approach to capital-structure

issues reflected a progression o f thought over time. They provided an
overview o f the current state of capital-structure theory. One perspective
on capital-structure choice was to view it as posing trade-offs among five
elements: (i) the tax benefits o f financing, (ii) the explicit costs of
28
financial distress, (iii) the agency costs of debt including indirect costs
linked to financial distress), (iv) the agency costs of equity, and (v) the
signaling effect of security issuance.

Mira and Gracia (2003) explored two of the most relevant theories
that explained financial policy in small and medium enterprises (SMEs),
pecking order theory and trade-off theory. Panel data methodology was
used to test the empirical hypotheses over a sample of 6482 Spanish SMEs
during the five-year period 1994-1998. The results suggested that both
theoretical approaches contribute to explain capital structure in SMEs.
However, while they found evidence that SMEs attempted to achieve a target
or optimum leverage (trade-off model), there was less support for the
view that SMEs adjust their leverage level to their financing requirements.

Chartergy and Sinha (2009), the Qualified Institutional placement (QIP)

became more popular than Private Equity (PE) in the year 2009.
During 2009, Indian listed companies raised Rs.32,000 crore, which was
10 times higher than the funds raised in 2008 whereas the funds raised
through PE in 2009 was reduced to half of 2008. The reasons behind the
unpopularity of PE and increased popularity of QIP were the
requirement of a place in Board of Directors for PE participants, strict due
diligence process adopted by PE participants and longer procedural
period for raising funds through PE.

Arana (2008) analyzed SEBI’s new proposal for primary market regarding
mandating the Initial public Offering (IPO) grading for unlisted companies
from January 2007. As per the amendment of SEBI (DIP) guidelines 2000,
the companies offering shares through IPO must obtain a grade for its
IPO from at least one credit rating agency regarding fundamentals Of
the company. The IPO grading did not affect the fundamentally strong
companies but some companies with poor grading had to withdraw IPOs.
29
 CHAPTER 4

CONCLUSIONS & FINDINGS

4.1 Conclusion

30
4.1 CONCLUSION

This is the concluding chapter which gives a synthesis of the whole study.

The genesis of which has been given on the introductory chapter. After

going through the genesis (objectives) and thesis (historical landmarks), it

would be proper to suggest the constructive suggestions based on the

problems and constraints being faced in the functioning of capital market.

The regulatory authorities have also brought some programmers and

announced some policies to promote and develop the capital market. This

chapter examines such programmers and policies and also tries to provide

some meaningful and practical suggestions for capital market development

which, in turn, will facilitate transforming the savings into

investments.

Financing short-term needs is essentially a financing of current assets using

short-term financial resources. Current assets, however, are usually funded in

part through long-term financial resources that can fund a permanent as well

as transitional part of current assets. Different sources are used to finance

current assets. It is mainly the trade credit, which is a natural source of

financing of the customer by the supplier. It represents the customer's

liabilities arising from the delay payments to suppliers for the receipt of the

goods. Short-term bank loans are loans whose lenders are banks. Loans are

provided in various forms. Knowledge of forms and parameters of short-

term bank loans is a prerequisite for the effective management and the use of
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bank loans to the fulfilment of the objectives of the company. Part of the

short-term financial resources are a variety of obligations, which form a

source from their creation to the time of their payment. Optimal composition

of short-term financial resources contributes to ensure the ability to pay as

one of the fundamental objectives of the company in its financial

management.

Finally, the chapter is annexed with a bibliography to acknowledge the

contribution of researchers in this field.

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 CHAPTER 5
BIBLIOGRAPHY & REFERENCES

5.1 Bibliography

5.2 References

33
5.1 BIBLIOGRAPHY

1. Newspapers

2. Books

3. Magazines

4. Internet Sites

5.2 REFERENCES
1. Van Horne, J.C. & Wachowicz, J. M., 2004. Fundamentals of Financial
Management,”(12 ed.), New York: Prentice Hall.

2. I M Pandey , 2010. “Financial Management” (10 ed.), Vikas Publishing

House, Noida

3. 1Barua,S. K., Raghanathan V., and Varma Jayanth R. (1994), “Research

on the Indian Capital Market : A Review”, Indian Institute of Ahmedabad, -
pp 1

4. Choudhari Arup (2007) “Stock Market Regulations and Financial

Reporting in South Asia: In Search of Emerging Capital Market
Characteristics and Policy Issues”, Capital Market in India : Revitalizing the
Economy Edited by Asis Kumar Pain, ICFAI University Press, 2007,
pp.155-183

5. Harvey, C.R, (1995), “The Risk Exposure of Emerging Equity Markets”,

The World Bank Economic Review, Vol.9, No.1,pp.19-50

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