Corporate Investments in Asian Emerging Markets: Financial Conditions, Financial Development, and Financial Constraints

26 Pages Posted: 10 May 2013

See all articles by Jianxin Wang

Jianxin Wang

University of Technology Sydney (UTS)

Maria Socorro Gochoco‐Bautista

University of the Philippines, School of Economics

Noli R. Sotocinal

Asian Development Bank

Date Written: April 2013

Abstract

Motivated by the literature on the finance – growth nexus, this paper explores the mechanisms through which finance affects corporate investments and capital accumulation. We separate the effects of financial conditions from those of financial development. Based on a sample of firms from five Asian emerging economies, we find that (1) financial conditions and financial development affect corporate investments through different channels. Financial conditions affect firms’ growth opportunities and investment demand. Financial development primarily affects firms’ external financing constraints. (2) Large firms benefit more from improved financial conditions, while small firms benefit more from financial development. (3) The effects of financial conditions and the level of financial development are asymmetric: they are stronger when the global financial crisis was unfolding and weaker during the subsequent rebound.

Keywords: corporate investments, investment sensitivity to cash flows, financial

JEL Classification: E2, E3, G1, G3

Suggested Citation

Wang, Jianxin and Gochoco-Bautista, Maria Socorro and Sotocinal, Noli R., Corporate Investments in Asian Emerging Markets: Financial Conditions, Financial Development, and Financial Constraints (April 2013). Asian Development Bank Economics Working Paper Series No. 346. Available at SSRN: https://ssrn.com/abstract=2262595 or http://dx.doi.org/10.2139/ssrn.2262595

Jianxin Wang (Contact Author)

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
Sydney, New South Wales 2000
Australia

Maria Socorro Gochoco-Bautista

University of the Philippines, School of Economics ( email )

Quezon City, Diliman
Philippines

Noli R. Sotocinal

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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