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Global Liquidity and Corporate Financing in Emerging Asia

Author

Listed:
  • Vidhan K. Goyal

    (Chair Professor of Finance
    Hong Kong University of Science and Technology)

  • Frank Packer

    (Regional Adviser in the Representative Office for Asia and the Pacific
    Bank for International Settlements, Hong Kong)

Abstract

When corporate debt is measured relative to assets, there is little evidence of an increase in leverage. Corporate leverage in Asia is generally stable. This contrasts sharply with what we observed ahead of the Asian financial crisis of the late 1990s. The legal environment and quality of institutions has an important influence on the capital structure of Asian firms. Leverage increases with the strength of creditor rights, political stability, and efficiency of resolution of insolvencies. Accommodative monetary policies in the U.S. since the global financial crisis has resulted in greater use of debt financing in countries with stronger institutions. Foreign investors prefer to invest in better governed firms since they are at an informational disadvantage relative to local investors. These policies have also resulted in higher capital expenditures by firms in countries with stronger institutions. Furthermore, global liquidity relaxes the financing constraints of firms.

Suggested Citation

  • Vidhan K. Goyal & Frank Packer, 2019. "Global Liquidity and Corporate Financing in Emerging Asia," HKUST IEMS Thought Leadership Brief Series 2019-35, HKUST Institute for Emerging Market Studies, revised Oct 2019.
    • Handle: RePEc:hku:briefs:201935
    as

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    File URL: https://iems.ust.hk/assets/publications/thought-leadership-briefs/2019/tlb35/iems_tlb-35_1017.pdf
    File Function: First version, 2019
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