coverage for China is comparable to that of Orbis; Worldscope has information for 2,950 firms. However, for India, the coverage is more limited with only 2,592 firms included in the database, most of which with information available only from 2005 onward. A comparison of the sample of Indian firms in Orbis and Worldscope suggests that the Worldscope sample is biased toward larger firms. Hence, we need to take this fact into account when interpreting the results on capital expenditures for India.<sup>18</sup>

# **3. Capital market development and firm financing**

Since the 1990s, China and India have undertaken significant efforts to expand the scope and depth of their financial systems, including the development of their capital markets. Both countries have also relaxed the rules and regulations for companies to raise capital in equity and bond markets and for domestic and foreign investors to invest in capital markets. Given this background, we next examine the evolution of commonly used aggregate indicators of financial sector development. We then analyze the extent to which the development of the financial system has implied a more widespread use of capital markets as a source of financing for corporations.

18 Although survivorship bias could arise in different ways, we believe that it is not affecting our conclusions. This bias could appear if, for example, risky firms that raise capital de-list or die and are not covered in our sample. Then, we would tend to overestimate the effects of the capital raising activity because we would not observe their poor performance. However, it could be the case that more established, blue-chip firms are the ones that raise capital through equity and bonds. Not observing firms that de-list or die (which to do not tend to raise capital in this instance) would lead to an overestimation of the performance of the control group, and we would thus tend to underestimate the difference between the treated and the control group. Ex-ante, it is difficult to know whether and how survivorship bias might affect our results. However, our results suggest that the potential for an upward bias in our estimates due to survivorship bias is limited. First, our results suggest that the more established firms are the ones that raise capital and that the ones that are more likely to de-list or die belong to our control group. Second, we obtained information on de-listings during our sample period from Bloomberg. Only a small fraction of the de-listed firms (about 10 percent) actually raised capital through bonds or equity, and 90 percent of those firms that raised capital are covered in our SDC-Orbis matched data set. The de-listed firms that raised funds in capital markets but that are not included in our data set represent in fact around 3 percent of the firms that raised capital and are included in our data set. Moreover, our SDC-Orbis matched data set covers only 23 percent of the de-listed firms that did not raise capital. The omission of these firms suggests that we might be overestimating the performance of our control group and therefore adding a downward bias to our results. Third, we obtained similar results using the Worldscope data, as further described in Section 4.3. Noticeably the post-issuance growth rates are positive and statistically significant, which suggests that our findings of a significant difference between the treated and the control group represent a lower bound of the effects of capital raising activity on firm performance.

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