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Malaysian Capital Controls: Macroeconomics and Institutions

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Author Info
Simon Johnson
Todd Mitton
Kalpana Kochhar
Natalia T. Tamirisa

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Abstract

We analyze the capital controls imposed in Malaysia in September 1998. In macroeconomic terms, these controls neither yielded major benefits nor were costly. At the same time, the stock market interpreted the capital controls (and associated events) as favoring firms with stronger political connections, and some connected firms reportedly received advantages immediately following the crisis. Analysis of financial accounts indicates that connected firms outperformed unconnected firms before the 1997-98 crisis but not afterward. After the crisis, connected firms were either not supported as much as the market had expected or the benefits they received were not manifest in their published accounts.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/51.

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Length: 51 pages
Date of creation: 07 Mar 2006
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Handle: RePEc:imf:imfwpa:06/51

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Keywords: Capital controls ; Malaysia ; Financial crisis ; Political economy ; Stock markets ;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  2. Kaplan, Ethan & Rodrik, Dani, 2001. "Did the Malaysian Capital Controls Work?," CEPR Discussion Papers 2754, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March. [Downloadable!]
  4. Michael Hutchison, 2001. "A cure worse than the disease? currency crises and the output costs of IMF-supported stabilization programs," Pacific Basin Working Paper Series 01-02, Federal Reserve Bank of San Francisco. [Downloadable!]
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  5. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  6. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December. [Downloadable!] (restricted)
  7. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May. [Downloadable!] (restricted)
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  8. Randall Morck & Bernard Yeung & Wayne Wu, 1999. "The Information Content of Stock Markets: Why do Emerging Markets have Synchronous Stock Price Movements?," William Davidson Institute Working Papers Series 44, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  9. Michael L. Lemmon & Karl V. Lins, 2003. "Ownership Structure, Corporate Governance, and Firm Value: Evidence from the East Asian Financial Crisis," Journal of Finance, American Finance Association, vol. 58(4), pages 1445-1468, 08. [Downloadable!] (restricted)
  10. Chong, Beng-Soon & Liu, Ming-Hua & Tan, Kok-Hui, 2006. "The wealth effect of forced bank mergers and cronyism," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 3215-3233, November. [Downloadable!] (restricted)
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  12. Yougesh Khatri & Il Houng Lee & O. Liu & Kanitta Meesook & Natalia T. Tamirisa, 2001. "Malaysia: From Crisis to Recovery," IMF Occasional Papers 207, International Monetary Fund.
  13. Mitton, Todd, 2002. "A cross-firm analysis of the impact of corporate governance on the East Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 64(2), pages 215-241, May. [Downloadable!] (restricted)
  14. Rudi Dornbusch, 2001. "Malaysia: Was it Different?," NBER Working Papers 8325, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April. [Downloadable!] (restricted)
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  16. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February. [Downloadable!] (restricted)
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  17. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. [Downloadable!] (restricted)
  18. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons from the East Asian Crisis," CRSP working papers 486, Center for Research in Security Prices, Graduate School of Business, University of Chicago. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Prasad, Eswar & Rajan, Raghuram G., 2008. "A Pragmatic Approach to Capital Account Liberalization," IZA Discussion Papers 3475, Institute for the Study of Labor (IZA). [Downloadable!]
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  2. Shang-Jin Wei & Zhiwei Zhang, 2007. "Collateral Damage: Exchange Controls and International Trade," NBER Working Papers 13020, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Thierry Tressel & Thierry Verdier, 2007. "Financial Globalization and the Governance of Domestic Financial Intermediaries," IMF Working Papers 07/47, International Monetary Fund. [Downloadable!]
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