The sudden stops of international capital flows and corporate financing constraints——An empirical analysis based on global listed companies

Utilizing firm-level data spanning 21,527 companies across 68 major economies from 1988 to 2024, this paper investigates the impact of sudden stops in international capital flows on corporate financing constraints and their transmission mechanisms. The result shows that: Sudden stop shocks will intensify corporate financing constraints. This finding still holds after a series of robustness tests; The impact is more pronounced in firms with high capital intensity and high R&D investment, while it is mitigated in economies with flexible exchange rate regimes and capital repatriation; Channel analysis shows that the sudden stops cause the price of corporate assets to plummet, the value of collateral to shrink and the risk − bearing of banks to decline, and thus strengthening of financing constraints of enterprises; Extended analysis demonstrates that persistent financing constraints induce systemic corporate distress through deteriorating financial situation of enterprises, strengthening managers’ negative expectation gap, increasing organizational downside risk; while strengthening macro − prudential supervision can effectively alleviate the negative effect of the sudden stop on corporate financing constraints, thereby helping companies avoid poverty. This paper provides firm − level evidence to reveal the Fisherian effect in the sudden stop of international capital flow. It also suggests that deepening the opening of its financial market and strengthening financial support to help companies bail out, will prevent the risk of external shocks for EMEs.