A Closer Look at the Effects of Equity Market Liberalization in Emerging Markets
Review of Corporate Finance Studies, Forthcoming
46 Pages Posted: 27 Jun 2013 Last revised: 1 Apr 2022
Date Written: March 31, 2022
Abstract
Earlier studies find that emerging market economies with more liberalized equity markets grow faster. Some studies conclude that liberalization caused the growth, while others contend that contemporaneous economic policies and prevailing economic conditions played important roles. The causal argument contends that foreigner-investability in public firms leads to lower discount rates, and greater share issuance, investment, and efficiency. Using three separate measures of foreign-investability, we do not find evidence of these effects. We further find that commonly used de jure foreigner-investability measures are poor de facto measures. Several economic indicators, which are not directly influenced by equity market liberalization, grow faster in countries with more investable firms. Taken in their entirety, our findings suggest that foreigner-investability cannot fully account for the equity market liberalization-growth relation.
Keywords: Liberalization, Equity Issuance, Financial Constraints, Capital Raising
JEL Classification: F00, G30, G24
Suggested Citation: Suggested Citation