The Real Effects of Capital Controls: Firm-Level Evidence from a Policy Experiment

58 Pages Posted: 8 Dec 2014 Last revised: 18 Feb 2021

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER); University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Fabio Kanczuk

University of São Paulo (USP) - Department of Economics

Date Written: December 2014

Abstract

This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. On average, there is a statistically significant drop in cumulative abnormal returns consistent with an increase in the cost of capital for Brazilian firms following capital control announcements. Large firms and the largest exporting firms appear less negatively affected compared to external-finance-dependent firms, and capital controls on equity inflows have a more negative announcement effect on equity returns than those on debt inflows. Overall, the findings have implications for macro-finance models that abstract from heterogeneity at the firm level to examine the optimality of capital control taxation.

Suggested Citation

Alfaro, Laura and Chari, Anusha and Kanczuk, Fabio, The Real Effects of Capital Controls: Firm-Level Evidence from a Policy Experiment (December 2014). NBER Working Paper No. w20726, Available at SSRN: https://ssrn.com/abstract=2535178

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Anusha Chari

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

McColl Building
Chapel Hill, NC 27599-3490
United States

Fabio Kanczuk

University of São Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-900
Brazil
011-55-11-818-5915 (Phone)
011-55-11-3661-7333 (Fax)

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