Do Debt Flows Crowd Out Equity Flows or the Other Way Round?
AbstractIn the presence of asymmetric information, the stage at which financing decisions are made about investment projects in a small open economy is crucial for the composition of international capital inflows as well as for the efficiency of channeling savings into investment. This paper compares the implications of two extreme cases regarding the information possessed by the firms at their financing stage for whether inflows of foreign debt may crowd out foreign equity or the other way round. The scope for corrective tax policies is examined. We also provide a welfare comparison between the two mechanisms of capital flows.
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Bibliographic InfoPaper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 3.
Length: 16 pages
Date of creation: May 1999
Date of revision: Apr 2000
Publication status: Published in Annals of Economics and Finance, May 2000, pages 33-47
Debt and equity flows; Asymmetric information; Bankruptcy cost; Market failures; Corrective taxation;
Other versions of this item:
- Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 2000. "Do Debt Flows Crowd Out Equity Flows or the Other Way Round?," Annals of Economics and Finance, Society for AEF, vol. 1(1), pages 33-47, May.
- Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 1998. "Do Debit Flows Crowd out Equity Flows or the other way Round?," CEMA Working Papers: Serie Documentos de Trabajo. 137, Universidad del CEMA.
- Razin, A. & Sadka, E. & Yuen, C.-W., 1998. "Do Debt Flows Crowd out Equity Flows or the Other Way Round?," Papers 17-98, Tel Aviv.
- Assaf Razin & Efraim Sadka & Chi-Wa Yuen, 2000. "Do Debt Flows Crowd Out Equity Flows Or the Other Way Round?," NBER Working Papers 7736, National Bureau of Economic Research, Inc.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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