This paper examines the pattern of corporate financing, particularly, behavior and composition of internal sources of funds. As firms' capacity to generate funds internally are mostly affected by reserves and surplus, and depreciation provisions, this paper discusses how corporation taxation policies and various tax relief measures provided by the government time and again have significantly affected the generation of internal funds.

Corporate investment behavior and its financing have attracted a wide interest amongst researchers. While several factors were identified to have been the major determinants of corporate investment, factors underlying financing behavior have been explored rather in a limited way. This could be attributed to difficulties involved in isolating factors influencing a particular source through which companies mobilize funds. Although long-term finance is generally associated with capital spending by firms, it is strictly not possible to relate one source of fund to corporate investment.

Private corporate sector in India had to operate within the environment regulated by the state. Not only policies influenced the direction of corporate investment, but also their method of financing. This paper examines the behavior and composition of internal sources of funds for the period from 1956-57 to 2006-07. As fiscal policy is identified to have influenced generation of internal funds, the analysis is juxtaposed against fiscal environment.

The present paper examines the financing practices of corporate sector. A special emphasis has been placed on the examination of composition of internal sources, based on the data collected from the `Studies of Finances of Public Limited Companies', published by the Reserve Bank of India.

Public Finance, Corporate Financing, Corporate Investment, Reserve Bank of India, Paid-up Capital, Sinking Funds, Share Premium, Rangarajan Committee, Tax Environment, Taxation Policies, Mathai Commission, Union Budget, Corporation Tax Rate, Industrial Development Bank of India, IDBI.