Firm Survival In India: Impact Of Financial Constraints

Abstract

The paper examines firm survival in India by considering financial constraints as a key determinant. In this study, the Cox Proportional Hazard Model is applied to study the impact of financial constraints on firm survival. The data is collected for firms in the Indian manufacturing sector on various dimensions for the time 2000-2018. This study established that 27.6% of firms or 887 firms did not survive during the observation period. At the same time, the risk of failure greatly differs among the region groups and sectors. Furthermore, the survival analysis results reveal that financially constrained firms cannot survive and this effect is consistent across region groups. As a robustness check, alternative parametric survival analysis models are also estimated and their results are quite similar to those estimated through the Cox model. Our results suggest that improving financial health will play a strong role in preventing firm failure.