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Suppliers, Investors, and Equity Market Liberalizations

  • Strieborny, Martin

    ()

Equity market liberalizations allow foreign investors to acquire ownership stakes in domestic firms. Previous research on the real impact of these events has therefore emphasized the interactions between firms and investors. This paper shows that cross-border equity flows also improve buyers-suppliers relationships with positive ramifications for economic growth. Firstly, a buyer backed by foreign capital means a smaller probability of contract failure due to default or some liquidity problems. Secondly, liberalization-driven improvements in public and corporate governance decrease the risk of a deliberate breach of contract. Cross-border equity flows can thus reassure upstream firms about the financial stability and contractual reliability of their corporate customers. Results from panel data and event-study approach confirm that equity market liberalizations boost output growth particularly in industries dependent on the trust of their suppliers, establishing a novel channel from financial globalization to the real economy.

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Paper provided by Knut Wicksell Centre for Financial Studies, Lund University in its series Knut Wicksell Working Paper Series with number 2013/13.

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Length: 27 pages
Date of creation: 19 Jun 2013
Date of revision:
Handle: RePEc:hhs:luwick:2013_013
Contact details of provider: Postal: Knut Wicksell Centre for Financial Studies, Lund University School of Economics and Management, P.O. Box 7080, S-220 07 Lund, Sweden
Phone: +46 46-222 32 61
Fax: +46 46-222 34 06
Web page: http://www.lusem.lu.se/kwc
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