Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence

48 Pages Posted: 23 Aug 2007

See all articles by Senay Agca

Senay Agca

George Washington University - School of Business, Department of Finance

Gianni De Nicolo

Johns Hopkins University - Carey Business School; CESifo (Center for Economic Studies and Ifo Institute)

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Date Written: July 2007

Abstract

We study how credit market deregulation and increased international financial openness have changed corporate borrowing. The evidence comes from a large panel of publicly traded firms in 38 countries over the period 1994-2002. Reforms are measured with a comprehensive new index that tracks six separate dimensions. We find that these transformations have increased leverage and lengthened debt maturity in advanced economies, as expected, suggesting that in these countries corporate credit markets have become deeper. In emerging economies, the picture is more mixed: more international openness has led to more leverage but shorter debt maturity. Financial sector reforms have reduced leverage, while their effects on debt maturity have differed depending on the type of reform. Importantly, the differential impact of openness and reforms on the leverage and debt maturity of firms in advanced and emerging market countries also emerges when we distinguish between firms that are potentially financially constrained and firms that are not. These findings suggest that in emerging economies fundamental institutional weaknesses make it difficult to secure the benefits of international financial openness and domestic financial reforms.

Keywords: Working Paper, Debt, International capital markets, Credit

Suggested Citation

Agca, Senay and De Nicolo, Gianni and Detragiache, Enrica, Financial Reforms, Financial Openness, and Corporate Borrowing: International Evidence (July 2007). IMF Working Papers, Vol. , pp. 1-47, 2007. Available at SSRN: https://ssrn.com/abstract=1007935

Senay Agca

George Washington University - School of Business, Department of Finance ( email )

2201 G Street
Funger Hall 505
Washington, DC 20052
United States
202-994-9209 (Phone)
202-994-5014 (Fax)

HOME PAGE: http://sites.google.com/site/senayagcaweb/

Gianni De Nicolo (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
(410) 234-4507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Enrica Detragiache

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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