Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence
IMF Working Papers, July 1, 2007
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- Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence
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Bibliographic details
- Authors: Enrica Detragiache, Gianni De Nicolo, Senay Agca
- Published: July 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451867503.001
Overview
- Study period: 1994-2002
- Sample: publicly traded firms in 38 countries
- Reform measurement: comprehensive new index that tracks six separate dimensions
- Main focus: how credit market deregulation and increased international financial openness have changed corporate borrowing
Methodology and Evidence
- Data source: a large panel of publicly traded firms
- Cross-country coverage: 38 countries
- Time horizon: 1994-2002
- Reform index: tracks six separate dimensions (as measured by the study)
Key Findings
- Advanced economies:
- Reforms and increased international financial openness have increased leverage.
- Reforms and increased international financial openness have lengthened debt maturity.
- Interpretation: corporate credit markets in advanced economies have become deeper.
- Emerging economies:
- Increased international financial openness has led to more leverage but shorter debt maturity.
- Financial sector reforms have reduced leverage.
- Effects of financial sector reforms on debt maturity have differed depending on the type of reform.
- Firm-level heterogeneity:
- The differential impact of openness and reforms on leverage and debt maturity between advanced and emerging market countries also emerges when distinguishing between firms that are potentially financially constrained and firms that are not.
- Institutional constraint:
- Finding: in emerging economies fundamental institutional weaknesses make it difficult to secure the benefits of international financial openness and domestic financial reforms.
Implications and Considerations
- The evidence indicates that the same financial reforms and openness produce different corporate-borrowing outcomes in advanced economies versus emerging economies.
- For emerging economies, the results underscore the importance of addressing fundamental institutional weaknesses to realize potential benefits from international financial openness and domestic financial reforms.
- When assessing reform and openness initiatives, policymakers and analysts should account for firm-level financial constraints, as impacts differ between potentially constrained and unconstrained firms.