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Financial Reforms, Financial Openness, and Corporate Borrowing

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  • Enrica Detragiache
  • Gianni De Nicoló
  • Senay Agca

Abstract

We study how credit market deregulation and increased international financial openness have changed corporate borrowing. The evidence comes from a large panel of publicly traded firms in 38 countries over the period 1994-2002. Reforms are measured with a comprehensive new index that tracks six separate dimensions. We find that these transformations have increased leverage and lengthened debt maturity in advanced economies, as expected, suggesting that in these countries corporate credit markets have become deeper. In emerging economies, the picture is more mixed: more international openness has led to more leverage but shorter debt maturity. Financial sector reforms have reduced leverage, while their effects on debt maturity have differed depending on the type of reform. Importantly, the differential impact of openness and reforms on the leverage and debt maturity of firms in advanced and emerging market countries also emerges when we distinguish between firms that are potentially financially constrained and firms that are not. These findings suggest that in emerging economies fundamental institutional weaknesses make it difficult to secure the benefits of international financial openness and domestic financial reforms.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/186.

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Length: 47
Date of creation: 01 Jul 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/186

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Keywords: Credit; debt maturity; financial reforms; financial liberalization; bond; bond rating; bond rate; private long-term debt; stock market; short-term debt; international capital; financial economics; financial markets; financial globalization; financial sector; bond ratings; international capital markets; reserve requirements; long term debt; stock markets; access to international capital; bond markets; equity markets; interest rate controls; deposit money; deposit money banks; private sector debt; stock returns; government bond markets; financial structure; capital account liberalization; bonds; domestic financial sector; government bond; stock market liquidity; short term debt; local stock market; term bonds; debt maturities; domestic currency; central bank; international financial markets; debt data; corporate bond markets; stock market liberalization; access to debt; international finance; financial intermediaries; external liabilities; domestic financial deregulation; long-term bonds; financial contracts; interest rate liberalization; international country risk guide; financial deregulation; external debt; financial market; stock market liberalizations; corporate bond; money market; financial fragility; debt market; liquid markets;

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References

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Cited by:
  1. Thomas J. Flavin & Thomas O'Connor, 2009. "The sequencing of stock market liberalization events and corporate financing decisions," Economics, Finance and Accounting Department Working Paper Series n2021009.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Lanau, Sergi, 2011. "Domestic financial regulation and external borrowing," Bank of England working papers 429, Bank of England.

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