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Who benefits from capital account liberalization? Evidence from firm-level credit ratings data

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  • Prati, Alessandro
  • Schindler, Martin
  • Valenzuela, Patricio

Abstract

Using a novel panel data set on corporate foreign-currency credit ratings and capital account restrictions in advanced and emerging economies during 1995–2004, we find a strong positive effect of capital account liberalization on firms' credit risk, as measured by corporate credit ratings. As an identification strategy, we exploit within-country variation in firms' ability to obtain foreign currency and, thus, their ability to repay foreign currency debt. We find that liberalizing the capital account benefits significantly more those firms with more limited foreign currency access, namely, those producing nontradables. Our findings demonstrate a novel channel through which capital account restrictions affect economic outcomes, and they are robust to a broad range of alternative specifications.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 6 ()
Pages: 1649-1673

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:6:p:1649-1673

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Capital account liberalization; Credit access; Credit ratings;

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References

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Citations

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Cited by:
  1. Borensztein, Eduardo & Cowan, Kevin & Valenzuela, Patricio, 2013. "Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4014-4024.
  2. Christiansen, Lone & Schindler, Martin & Tressel, Thierry, 2013. "Growth and structural reforms: A new assessment," Journal of International Economics, Elsevier, vol. 89(2), pages 347-356.
  3. Ronald Fischer & Patricio Valenzuela, 2013. "Financial Openness, Market Structure and Private Credit: An Empirical Investigation," Documentos de Trabajo 297, Centro de Economía Aplicada, Universidad de Chile.
  4. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "The perils of a central bank's capital control: How substantial is the effect on firm value?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 111-135.
  5. Mahir Binici & Michael M. Hutchison & Martin Schindler, 2009. "Controlling Capital? Legal Restrictions and the Asset Composition of International Financial Flows," IMF Working Papers 09/208, International Monetary Fund.
  6. Vithessonthi, Chaiporn & Tongurai, Jittima, 2013. "Unremunerated reserve requirements, exchange rate volatility, and firm value," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 358-378.
  7. Ellyne, Mark & Chater, Rachel, 2013. "Exchange Control and SADC Regional Integration," MPRA Paper 46648, University Library of Munich, Germany.
  8. Gwion Williams & Rasha Alsakka & Owain ap Gwilym, 2013. "The Impact of Sovereign Credit Signals on Bank Share Prices during the European Sovereign Debt Crisis," Working Papers 13007, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  9. Franklin ALLEN & Elena CARLETTI & Jun 'QJ' QIAN & Patricio VALENZUELA, 2012. "Financial Intermediation, Markets, and Alternative Financial Sectors," Economics Working Papers ECO2012/11, European University Institute.

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