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Consequences of firms'relational financing in the aftermath of the 1995 Mexican banking crisis

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Abstract

This paper shows that, in the aftermath of the 1995 banking crisis, relational financing was a two-edged sword for firms listed on the Mexican Securities Market. On the negative side, only bank-linked firms observed on average a dependence on cash stock to finance their investment projects. On the positive side, the banking connection was important to boost their profit rates during the 1997-2000 period, at least for financially healthy firms. These econometric results are derived from dynamic panel data models of investment and profit rates, which are estimated by the Generalized Method of Moments, where level and difference equations are combined into a system.

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File URL: http://www.cema.edu.ar/publicaciones/download/volume8/castaneda.pdf
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Article provided by Universidad del CEMA in its journal Journal of Applied Economics.

Volume (Year): VIII (2005)
Issue (Month): (May)
Pages: 53-79

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Handle: RePEc:cem:jaecon:v:8:y:2005:n:1:p:53-79

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Keywords: relational financing; banking crisis; internal capital markets;

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  1. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 10(4), pages 1175-1202.
  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, Econometric Society, vol. 50(4), pages 1029-54, July.
  3. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
  4. Castillo Ponce, Ramón A., 2003. "Las restricciones de liquidez, el canal de crédito y la inversión en México," El Trimestre Económico, Fondo de Cultura Económica, Fondo de Cultura Económica, vol. 0(278), pages 315-342, abril-jun.
  5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, Elsevier, vol. 68(1), pages 29-51, July.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Gelos, R. Gaston & Werner, Alejandro M., 2002. "Financial liberalization, credit constraints, and collateral: investment in the Mexican manufacturing sector," Journal of Development Economics, Elsevier, Elsevier, vol. 67(1), pages 1-27, February.
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