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This paper studies the relation between firm's financing choices and financial globalization. Using an East Asian and Latin American firm-level panel for the 1980s and 1990s, we study how leverage ratios, debt maturity structure, and sources of financing change when economies are liberalized and when firms access international capital markets. We find that debt-equity ratios do not increase after financial liberalization. Debt maturity shortens for the average firm when countries undertake financial liberalization. However, domestic firms that actually participate in international capital markets extend their debt maturity. Financial liberalization has less effects on firms from countries with more developed domestic financial systems. Leverage ratios increase during crises.
Finance: General --- Investments: Bonds --- Investments: Stocks --- General Financial Markets: General (includes Measurement and Data) --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Financial Markets and the Macroeconomy --- Finance --- Investment & securities --- International capital markets --- Stock markets --- Stocks --- Financial sector development --- International bonds --- Financial markets --- Financial institutions --- Capital market --- Stock exchanges --- Financial services industry --- Bonds --- Korea, Republic of
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This paper studies international financial integration analyzing firms from various countries raising capital, trading equity, and/or cross-listing in major world stock markets. Using a large sample of 39,517 firms from 111 countries covering the period 1989-2000, we find that, although international financial integration increases substantially over this period, only relatively few countries and firms actively participate in international markets. Firms more likely to internationalize are from larger and more open economies, with higher income, better macroeconomic policies, and worse institutional environments. These firms tend to be larger, grow faster, and have higher returns and more foreign sales. While changes occur with internationalization, these firm attributes are present before internationalization takes place. The results suggest that international financial integration will likely remain constrained by country and firm characteristics.
International economic integration. --- Globalization. --- International business enterprises. --- Finance: General --- General Financial Markets: General (includes Measurement and Data) --- Financial Markets and the Macroeconomy --- Finance --- Stock markets --- Market capitalization --- International capital markets --- Capital markets --- Financial integration --- Stock exchanges --- Capital market --- Financial services industry --- International finance --- United States
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We examine the short- and long-run effects of financial liberalization on capital markets. To do so, we construct a new comprehensive chronology of financial liberalization in 28 mature and emerging market economies since 1973. We also construct an algorithm to identify booms and busts in stock market prices. Our results indicate that financial liberalization is followed by more pronounced boom-bust cycles in the short run. However, financial liberalization leads to more stable markets in the long run. Finally, we analyze the sequencing of liberalization and institutional reforms to understand the contrasting short- and long-run effects of liberalization.
Banks and Banking --- Exports and Imports --- Finance: General --- Industries: Financial Services --- International Finance: General --- Current Account Adjustment --- Short-term Capital Movements --- International Monetary Arrangements and Institutions --- International Lending and Debt Problems --- Financial Aspects of Economic Integration --- International Financial Markets --- General Financial Markets: General (includes Measurement and Data) --- Financial Institutions and Services: General --- Interest Rates: Determination, Term Structure, and Effects --- Finance --- International economics --- Stock markets --- Emerging and frontier financial markets --- Financial sector --- Capital account --- Real interest rates --- Financial markets --- Economic sectors --- Balance of payments --- Financial services --- Financial services industry --- Stock exchanges --- Interest rates --- United States
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July 2000 - This study of an important class of investors-U.S. mutual funds-finds that mutual funds do engage in momentum trading (buying winners and selling losers). They also engage in contagion trading strategies (selling assets from one country when asset prices fall in another). Kaminsky, Lyons, and Schmukler address the trading strategies of mutual funds in emerging markets. The data set they develop permits analyses of these strategies at the level of individual portfolios. A methodologically novel feature of their analysis: they disentangle the behavior of fund managers from that of investors. For both managers and investors, they strongly reject the null hypothesis of no momentum trading. Funds' momentum trading is positive: they systematically buy winners and sell losers. Contemporaneous momentum trading (buying current winners and selling current losers) is stronger during crises, and stronger for fund investors than for fund managers. Lagged momentum trading (buying past winners and selling past losers) is stronger during noncrises, and stronger for fund managers. Investors also engage in contagion trading-selling assets from one country when asset prices fall in another. These findings are based on data about mutual funds that represent only 10 percent of the market capitalization in the countries considered. Were it a larger share of the market, finding counterparties for their trades (the investors who buy when they sell and sell when they buy) would be difficult-and the premise that funds respond to contemporaneous returns rather than causing them would become tenuous. This paper-a product of Macroeconomics and Growth, Development Research Group-is part of a larger effort in the group to understand capital flows to developing countries. The study was funded by the Bank's Research Support Budget under the research project Mutual Fund Investment in Developing Countries. The authors may be contacted at graciela@gwu.edu, lyons@haas.berkeley.edu, or sschmukler@worldbank.org.
Budget --- Debt Markets --- Emerging Market --- Emerging Markets --- Finance and Financial Sector Development --- Financial Crisis --- Financial Support --- Fund Managers --- Hedge --- Hedge Funds --- Interest --- Investor --- Investors --- Lending --- Mutual Fund --- Mutual Fund Strategies --- Mutual Funds --- Pension --- Pension Funds --- Portfolio --- Trading --- Warrants
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April 2000 - Debt-equity ratios do not tend to increase after financial liberalization, but there is a shift from long-term to short-term debt. Globalization has uneven effects for firms with and without access to international capital markets. Countries with deeper domestic financial markets are less affected by financial liberalization. Schmukler and Vesperoni investigate whether integration with global markets affects the financing choices of firms from East Asia and Latin America. Using firm-level data for the 1980s and 1990s, they study how leverage ratios, the structure of debt maturity, and sources of financing change when economies are liberalized and when firms gain access to international equity and bond markets. The evidence shows that integration with world financial markets has uneven effects. On the one hand, debt maturity for the average firm shortens when countries undertake financial liberalization. On the other hand, domestic firms that actually participate in international markets get better financing opportunities and extend their debt maturity. Moreover, firms in economies with deeper domestic financial systems are affected less by financial liberalization. Finally, they show that leverage ratios increase during times of crisis. In an appendix, they analyze the previously unstudied case of Argentina, which experienced sharp financial liberalization and was hit hard by all recent global crises. This paper - a product of Macroeconomics and Growth, Development Reseach Group - is part of a larger effort in the group to understand financial development and financial integration. The authors may be contacted at sschmukler@worldbank.org or vesperon@wam.umd.edu.
Banks and Banking Reform --- Bond --- Bond Markets --- Debt --- Debt Markets --- Debt Maturity --- Debt-Equity --- Economic Development --- Emerging Economies --- Emerging Markets --- Equity --- Finance and Financial Sector Development --- Financial Liberalization --- Financial Markets --- Financial Structure --- Financial Systems --- Globalization --- International Bond --- International Financial Markets --- International Markets --- Maturity Structure --- Private Sector Development --- Share --- World Financial Markets
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