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The Real Effects of Capital Controls: Firm-Level Evidence from a Policy Experiment

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  • Laura Alfaro
  • Anusha Chari
  • Fabio Kanczuk

Abstract

This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. On average, there is a statistically significant drop in cumulative abnormal returns consistent with an increase in the cost of capital for Brazilian firms following capital control announcements. Large firms and the largest exporting firms appear less negatively affected compared to external-finance-dependent firms, and capital controls on equity inflows have a more negative announcement effect on equity returns than those on debt inflows. Overall, the findings have implications for macro-finance models that abstract from heterogeneity at the firm level to examine the optimality of capital control taxation.

Suggested Citation

  • Laura Alfaro & Anusha Chari & Fabio Kanczuk, 2014. "The Real Effects of Capital Controls: Firm-Level Evidence from a Policy Experiment," NBER Working Papers 20726, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20726
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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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