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Do External Funds Yield Lower Returns ? Recent Evidence From East Asian Economies

  • Sarmistha Pal

    (Cardiff Business School, UK)

  • Nigel Driffield

    (Birmingham Business School, UK)

Using a large firm level panel data set from four Asian countries, this paper compares the returns to various internal and external funds. A novel feature of our analysis is that we distinguish between financially constrained and unconstrained firms and determine selectivity-corrected estimates of rates of return to internal and external funds in markets characterised by information problems. Results derived from a unique random effects panel data model with selection and unobserved heterogeneity suggest evidence of significant misallocation, especially in external financing of investment. While these results contrast some of the existing results, they seem to complement the moral hazard arguments put forward by the macro literature on the recent Asian crisis.

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File URL: http://128.118.178.162/eps/fin/papers/0309/0309002.pdf
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Paper provided by EconWPA in its series Finance with number 0309002.

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Length: 25 pages
Date of creation: 04 Sep 2003
Date of revision: 15 Mar 2004
Handle: RePEc:wpa:wuwpfi:0309002
Note: Type of Document - ; pages: 25
Contact details of provider: Web page: http://128.118.178.162

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