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

See all articles by R. David McLean

R. David McLean

Georgetown University - McDonough School of Business

Jeffrey Pontiff

Boston College - Department of Finance

Mengxin Zhao

Independent; Securities and Exchange Commission (SEC)

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

McLean, R. David and Pontiff, Jeffrey and Zhao, Mengxin and Zhao, Mengxin, A Closer Look at the Effects of Equity Market Liberalization in Emerging Markets (March 31, 2022). Review of Corporate Finance Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2285470 or http://dx.doi.org/10.2139/ssrn.2285470

R. David McLean

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Jeffrey Pontiff (Contact Author)

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Independent

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