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Who Benefits From Capital Account Liberalization? Evidence From Firm-Level Credit Ratings Data

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  • Alessandro Prati
  • Martin Schindler
  • Patricio Valenzuela

Abstract

We provide new firm-level evidence on the effects of capital account liberalization. Based on corporate foreign-currency credit ratings data and a novel capital account restrictions index, we find that capital controls can substantially limit access to, and raise the cost of, foreign currency debt, especially for firms without foreign currency revenues. As an identification strategy, we exploit, via a difference-in-difference approach, within-country variation in firms'' access to foreign currency, measured by whether or not a firm belongs to the nontradables sector. Nontradables firms benefit substantially more from capital account liberalization than others, a finding that is robust to a broad range of alternative specifications.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/210.

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Length: 34
Date of creation: 01 Sep 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/210

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Keywords: Capital account liberalization; Capital controls; Access to capital markets; Asset management; Corporate sector; Economic models; Foreign exchange transactions; Foreign investment; capital account; capital account restrictions; credit rating; capital account openness; current account; capital account transactions; bond ratings; capital accounts; capital markets; capital flows; current account balance; cost of capital; capital mobility; credit ? rating; restrictions on capital account transactions; stock market; capital control; capital ? account ? liberalization; capital account regime; open capital account; capital account liberalizations; equity prices; capital inflows; international capital markets; current account deficit; capital outflows; capital ? account; international capital; working capital; consumer price index; current account surplus; capital structure; corporate bonds; bond yields; credit market; liberal capital account;

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. Binici, Mahir & Hutchison, Michael & Schindler, Martin, 2010. "Controlling capital? Legal restrictions and the asset composition of international financial flows," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 666-684, June.
  4. 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).
  5. Ellyne, Mark & Chater, Rachel, 2013. "Exchange Control and SADC Regional Integration," MPRA Paper 46648, University Library of Munich, Germany.
  6. 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.
  7. 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.
  8. Lone Engbo Christiansen & Thierry Tressel & Martin Schindler, 2009. "Growth and Structural Reforms," IMF Working Papers 09/284, International Monetary Fund.
  9. Fischer, Ronald & Valenzuela, Patricio, 2013. "Financial openness, market structure and private credit: An empirical investigation," Economics Letters, Elsevier, vol. 121(3), pages 478-481.
  10. 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.

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