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Capital market imperfections before and after financial liberalization: An Euler equation approach to panel data for Ecuadorian firms

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  • Haramillo, Fidel
  • Schiantarelli, Fabio
  • Weiss, Andrew

Abstract

Using a large panel of Ecuadorian firms, this paper analyzes the role of capital market imperfections for investment decisions, and investigates whether the financial reforms introduced in the 80’s have succeeded in relaxing financial constraints. The model allows both for an increase cost of borrowing, as the degree of leverage increases, and for a ceiling on a latter. The econometric results suggest both types of capital market imperfections are important for small and young firms, but not for large ones. Moreover, the estimated equations do not provide evidence that financial reform in Ecuador has helped to relax these financial restraints.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 51 (1996)
Issue (Month): 2 (December)
Pages: 367-386

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Handle: RePEc:eee:deveco:v:51:y:1996:i:2:p:367-386

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  1. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
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  5. Mark Gertler & R. Glenn Hubbard & Anil K. Kashyap, 1990. "Interest rate spreads, credit constraints and investment fluctuations: an empirical investigation," Finance and Economics Discussion Series 137, Board of Governors of the Federal Reserve System (U.S.).
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  12. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  13. Michael Devereux & Fabio Schiantarelli, 1989. "Investment, Finacial Factors and Cash Flow: Evidence From UK Panel Data," NBER Working Papers 3116, National Bureau of Economic Research, Inc.
  14. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank.
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  17. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
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  19. Harris, John R & Schiantarelli, Fabio & Siregar, Miranda G, 1994. "The Effect of Financial Liberalization on the Capital Structure and Investment Decisions of Indonesian Manufacturing Establishments," World Bank Economic Review, World Bank Group, vol. 8(1), pages 17-47, January.
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