Do Small Firms Benefit More from Foreign Portfolio Investment? Evidence from a Natural Experiment
41 Pages Posted: 17 Mar 2009
Date Written: March 16, 2009
We analyze the stock market impact of Thailand's unique restriction on portfolio capital inflows. The Thai government imposed a very stringent capital control on December 19, 2006 and then quickly abandoned it on December 20, 2006. While many other studies have been plagued with the difficulty of separating the impact of foreign capital from the impact of other concurrent events, this natural experiment helps us alleviate the time-series identification problem. Our results suggest that foreign portfolio investment helps large firms more, contrary to existing evidence which finds a benefit of foreign portfolio investment for small firms. We also investigate the importance of other firm characteristics correlated with size including a firm's exchange rate exposure, foreign ownership, and political connection.
Keywords: foreign portfolio investment, small firms, liberalization, capital control, emerging markets
JEL Classification: F32, G15, G18
Suggested Citation: Suggested Citation