Suppliers, Investors, and Equity Market Liberalizations
35 Pages Posted: 3 Nov 2011 Last revised: 28 Sep 2017
Date Written: March 20, 2017
Allowing foreign investors to acquire equity stakes in domestic firms stimulates the real economy by promoting frictionless relationships between buyers and suppliers of intermediate goods. I combine insights from research on financial liberalization and relationship-specific investment to derive this hypothesis and then use a difference-in-difference empirical framework to test it. Results from panel-data and event-study estimations confirm that equity market liberalizations boost output growth particularly in suppliers-dependent industries that require a high share of specialized inputs in their production process. Financial openness can thus facilitate smooth interactions between firms and an important corporate stakeholder - suppliers of crucial production inputs.
Keywords: corporate stakeholders; equity market liberalizations; finance and real economy
JEL Classification: G15, G30, F36
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