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Credit Market Freedom and Corporate Decisions

Author

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  • Andrea Calef

    (School of Economics, University of East Anglia)

  • Ifigenia Georgiou

    (School of Business, University of Nicosia)

  • Alfonsina Iona

    (School of Economics and Finance, Queen Mary University of London)

Abstract

Despite the extensive empirical evidence of a positive impact of economic freedom on economic growth, the influence of economic freedom and its components on a firms level of cash, leverage and investment remains an unexplored issue in microeconomics and corporate finance research. In this study, we contribute towards filling this gap by examining whether Credit Market Freedom - an important component of the Economic Freedom Index – influences corporate decisions. In particular, we study whether and to what extent Credit Market Freedom affects a firms target level of investment, cash holdings, and leverage. We observe the behavior of a large and heterogeneous sample of North American non-financial firms over the period 2000-2019. Our empirical results suggest that higher Credit Market Freedom is associated with a healthier corporate capital structure, higher financial flexibility, and a friendlier investment environment.

Suggested Citation

  • Andrea Calef & Ifigenia Georgiou & Alfonsina Iona, 2022. "Credit Market Freedom and Corporate Decisions," University of East Anglia School of Economics Working Paper Series 2022-09, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:ueaeco:2022-09
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    More about this item

    Keywords

    Economic Freedom; Corporate Decisions; Capital Structure;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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