Impact of Country Financial Development on the Firm: International Evidence

International Business & Economics Research Journal, Vol. 6, No. 11, pp. 66-80, 2007

Posted: 27 Aug 2007 Last revised: 17 Dec 2009

Abstract

The impact of financial development of a country on the earnings, capital spending, and stock returns of the firms of that country is the subject of this study. There are two different financial development indices which are utilized. The first is based on Love (2003), and the second is based on Khurana (2006). Using 40 different countries, the causality relationships and cumulative impacts of the lags of earnings and lags of capital spending on subsequent earnings, capital spending, and returns are examined for the financially developed countries and financially non-developed countries. Earnings and capital spending Granger-cause stock returns in financially developed countries. There is also evidence of efficiency in financially developed countries.

Keywords: Financial development, Earnings, Capital spending, Stock returns

JEL Classification: G30, G31, G34

Suggested Citation

Inci, Ahmet Can, Impact of Country Financial Development on the Firm: International Evidence. International Business & Economics Research Journal, Vol. 6, No. 11, pp. 66-80, 2007, Available at SSRN: https://ssrn.com/abstract=1009523

Ahmet Can Inci (Contact Author)

Bryant University ( email )

1150 Douglas Pike
Smithfield, RI 02917
United States

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