Does Financial Liberalization Relax Financing Constraints on Firms?

The author uses panel data on 394 firms in 13 developing countries for the years 1988-98 to learn whether financial liberalization relaxes financing constraints on firms. He finds that liberalization affects small and large firms differently. Small...

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Main Author:	Laeven, Luc
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ACCOUNTING AGENCY PROBLEMS ASYMMETRIC INFORMATION AUTOREGRESSION BANKING SECTOR BARRIERS TO ENTRY BASLE ACCORD BORROWING BORROWING CONSTRAINTS BORROWING COSTS CAPITAL ACCUMULATION CAPITAL ADEQUACY CAPITAL MARKETS CENTRAL BANK CONSTANT RETURNS TO SCALE CONTRACT ENFORCEMENT CREDIT CONTROL CREDIT MARKETS CREDIT RATIONING CREDIT SYSTEMS DEBT DEPOSITS DEREGULATION DISCOUNT RATE DIVIDENDS ECONOMIES OF SCALE EFFICIENCY OF CAPITAL EMPIRICAL ANALYSIS ENDOGENOUS VARIABLES EQUATIONS EXOGENOUS VARIABLES EXPECTED PRESENT VALUE EXPECTED VALUE EXTERNAL FINANCING FINANCIAL DEREGULATION FINANCIAL FACTORS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL SECTOR FINANCIAL SYSTEMS FIXED CAPITAL FOREIGN BANKS HIGHLY LEVERAGED FIRMS INFORMATION ASYMMETRY INTEREST RATE INTEREST RATES LOW INTEREST RATES MARKET LIBERALIZATION MULTIPLIERS NET SALES NET WORTH PRIVATIZATION PRODUCTION FUNCTION PRODUCTIVITY PROFITABILITY RESERVE REQUIREMENTS SAVINGS SECURITIES SECURITIES MARKETS SOFT BUDGET CONSTRAINTS STATE BANKS STATEMENTS STOCK MARKETS SUBSIDIARIES SUBSIDIARY TIME DEPOSITS TRANSITION ECONOMIES VALUATION
Online Access:	http://documents.worldbank.org/curated/en/2000/10/692863/financial-liberalization-relax-financing-constraints-firms http://hdl.handle.net/10986/19780

id	okr-10986-19780
recordtype	oai_dc
spelling	okr-10986-197802021-04-23T14:03:44Z Does Financial Liberalization Relax Financing Constraints on Firms? Laeven, Luc ACCOUNTING AGENCY PROBLEMS ASYMMETRIC INFORMATION AUTOREGRESSION BANKING SECTOR BARRIERS TO ENTRY BASLE ACCORD BORROWING BORROWING CONSTRAINTS BORROWING COSTS CAPITAL ACCUMULATION CAPITAL ADEQUACY CAPITAL MARKETS CENTRAL BANK CONSTANT RETURNS TO SCALE CONTRACT ENFORCEMENT CREDIT CONTROL CREDIT MARKETS CREDIT RATIONING CREDIT SYSTEMS DEBT DEPOSITS DEREGULATION DISCOUNT RATE DIVIDENDS ECONOMIES OF SCALE EFFICIENCY OF CAPITAL EMPIRICAL ANALYSIS ENDOGENOUS VARIABLES EQUATIONS EXOGENOUS VARIABLES EXPECTED PRESENT VALUE EXPECTED VALUE EXTERNAL FINANCING FINANCIAL DEREGULATION FINANCIAL FACTORS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL SECTOR FINANCIAL SYSTEMS FIXED CAPITAL FOREIGN BANKS HIGHLY LEVERAGED FIRMS INFORMATION ASYMMETRY INTEREST RATE INTEREST RATES LOW INTEREST RATES MARKET LIBERALIZATION MULTIPLIERS NET SALES NET WORTH PRIVATIZATION PRODUCTION FUNCTION PRODUCTIVITY PROFITABILITY RESERVE REQUIREMENTS SAVINGS SECURITIES SECURITIES MARKETS SOFT BUDGET CONSTRAINTS STATE BANKS STATEMENTS STOCK MARKETS SUBSIDIARIES SUBSIDIARY TIME DEPOSITS TRANSITION ECONOMIES VALUATION The author uses panel data on 394 firms in 13 developing countries for the years 1988-98 to learn whether financial liberalization relaxes financing constraints on firms. He finds that liberalization affects small and large firms differently. Small firms are financially constrained before liberalization begins but become less so after liberalization. The financing constraints on large firms, however, are low both before and after liberalization. The initial difference between small and large firms disappears over time. The author hypothesizes that financial liberalization has little effect on the financing constraints of large firms because they have better access to preferential directed credit in the period before liberalization. Financial liberalization also reduces imperfections in financial markets, especially the asymmetric information costs of firms' financial leverage. Countries that liberalize their financial sectors tend to see dramatic improvements in political climate as well. Successful financial liberalization seems to require both the political will and the ability to stop the preferential treatment of well-connected, usually large, firms. 2014-08-27T20:23:36Z 2014-08-27T20:23:36Z 2000-10 http://documents.worldbank.org/curated/en/2000/10/692863/financial-liberalization-relax-financing-constraints-firms http://hdl.handle.net/10986/19780 English en_US Policy Research Working Paper;No. 2467 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCOUNTING AGENCY PROBLEMS ASYMMETRIC INFORMATION AUTOREGRESSION BANKING SECTOR BARRIERS TO ENTRY BASLE ACCORD BORROWING BORROWING CONSTRAINTS BORROWING COSTS CAPITAL ACCUMULATION CAPITAL ADEQUACY CAPITAL MARKETS CENTRAL BANK CONSTANT RETURNS TO SCALE CONTRACT ENFORCEMENT CREDIT CONTROL CREDIT MARKETS CREDIT RATIONING CREDIT SYSTEMS DEBT DEPOSITS DEREGULATION DISCOUNT RATE DIVIDENDS ECONOMIES OF SCALE EFFICIENCY OF CAPITAL EMPIRICAL ANALYSIS ENDOGENOUS VARIABLES EQUATIONS EXOGENOUS VARIABLES EXPECTED PRESENT VALUE EXPECTED VALUE EXTERNAL FINANCING FINANCIAL DEREGULATION FINANCIAL FACTORS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL SECTOR FINANCIAL SYSTEMS FIXED CAPITAL FOREIGN BANKS HIGHLY LEVERAGED FIRMS INFORMATION ASYMMETRY INTEREST RATE INTEREST RATES LOW INTEREST RATES MARKET LIBERALIZATION MULTIPLIERS NET SALES NET WORTH PRIVATIZATION PRODUCTION FUNCTION PRODUCTIVITY PROFITABILITY RESERVE REQUIREMENTS SAVINGS SECURITIES SECURITIES MARKETS SOFT BUDGET CONSTRAINTS STATE BANKS STATEMENTS STOCK MARKETS SUBSIDIARIES SUBSIDIARY TIME DEPOSITS TRANSITION ECONOMIES VALUATION
spellingShingle	ACCOUNTING AGENCY PROBLEMS ASYMMETRIC INFORMATION AUTOREGRESSION BANKING SECTOR BARRIERS TO ENTRY BASLE ACCORD BORROWING BORROWING CONSTRAINTS BORROWING COSTS CAPITAL ACCUMULATION CAPITAL ADEQUACY CAPITAL MARKETS CENTRAL BANK CONSTANT RETURNS TO SCALE CONTRACT ENFORCEMENT CREDIT CONTROL CREDIT MARKETS CREDIT RATIONING CREDIT SYSTEMS DEBT DEPOSITS DEREGULATION DISCOUNT RATE DIVIDENDS ECONOMIES OF SCALE EFFICIENCY OF CAPITAL EMPIRICAL ANALYSIS ENDOGENOUS VARIABLES EQUATIONS EXOGENOUS VARIABLES EXPECTED PRESENT VALUE EXPECTED VALUE EXTERNAL FINANCING FINANCIAL DEREGULATION FINANCIAL FACTORS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL REFORM FINANCIAL SECTOR FINANCIAL SYSTEMS FIXED CAPITAL FOREIGN BANKS HIGHLY LEVERAGED FIRMS INFORMATION ASYMMETRY INTEREST RATE INTEREST RATES LOW INTEREST RATES MARKET LIBERALIZATION MULTIPLIERS NET SALES NET WORTH PRIVATIZATION PRODUCTION FUNCTION PRODUCTIVITY PROFITABILITY RESERVE REQUIREMENTS SAVINGS SECURITIES SECURITIES MARKETS SOFT BUDGET CONSTRAINTS STATE BANKS STATEMENTS STOCK MARKETS SUBSIDIARIES SUBSIDIARY TIME DEPOSITS TRANSITION ECONOMIES VALUATION Laeven, Luc Does Financial Liberalization Relax Financing Constraints on Firms?
relation	Policy Research Working Paper;No. 2467
description	The author uses panel data on 394 firms in 13 developing countries for the years 1988-98 to learn whether financial liberalization relaxes financing constraints on firms. He finds that liberalization affects small and large firms differently. Small firms are financially constrained before liberalization begins but become less so after liberalization. The financing constraints on large firms, however, are low both before and after liberalization. The initial difference between small and large firms disappears over time. The author hypothesizes that financial liberalization has little effect on the financing constraints of large firms because they have better access to preferential directed credit in the period before liberalization. Financial liberalization also reduces imperfections in financial markets, especially the asymmetric information costs of firms' financial leverage. Countries that liberalize their financial sectors tend to see dramatic improvements in political climate as well. Successful financial liberalization seems to require both the political will and the ability to stop the preferential treatment of well-connected, usually large, firms.
format	Publications & Research :: Policy Research Working Paper
author	Laeven, Luc
author_facet	Laeven, Luc
author_sort	Laeven, Luc
title	Does Financial Liberalization Relax Financing Constraints on Firms?
title_short	Does Financial Liberalization Relax Financing Constraints on Firms?
title_full	Does Financial Liberalization Relax Financing Constraints on Firms?
title_fullStr	Does Financial Liberalization Relax Financing Constraints on Firms?
title_full_unstemmed	Does Financial Liberalization Relax Financing Constraints on Firms?
title_sort	does financial liberalization relax financing constraints on firms?
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2000/10/692863/financial-liberalization-relax-financing-constraints-firms http://hdl.handle.net/10986/19780
_version_	1764440702266114048

Does Financial Liberalization Relax Financing Constraints on Firms?

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