Firm Characteristics and the Impact of Emerging Market Liberalizations

Rutgers University Working Paper

48 Pages Posted: 27 May 2002

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2002


We provide a firm level analysis of the impact of capital market liberalization in 18 emerging markets. We find a larger increase in returns during liberalization and a larger decrease in returns after liberalization than previously found using indexes. While slightly more than half of the firms had higher returns during liberalization, a significant majority of firms have lower returns and lower dividend yields subsequently. These changes in returns suggest that liberalization lowers firms? cost of equity as predicted by models of international asset pricing. We also find that emerging market firms have increased exposure to the world market and decreased exposure to the home market following liberalization. On average, the Fama and French factors and momentum are not significantly affected by liberalization. We also find that the impact of liberalization varies significantly and to a large degree predictably across firms. During liberalization, smaller firms, high book-to-market value firms, low local beta firms, low foreign exchange beta firms, and non-manufacturing firms have increased returns. After liberalization, firms with higher local market betas, and firms with lower foreign exchange betas have decreased returns. Firms which are cross- listed have significantly larger changes in returns than other firms, suggesting that cross- listing has an additional diversifying impact.

Keywords: liberalization, emerging markets

JEL Classification: F3, G15

Suggested Citation

Patro, Dilip K. and Wald, John K., Firm Characteristics and the Impact of Emerging Market Liberalizations (May 1, 2002). Rutgers University Working Paper, Available at SSRN: or

Dilip K. Patro (Contact Author)

OCC ( email )

400 7th Street SW
Washington, DC 20219
United States
202-649-5548 (Phone)

John K. Wald

University of Texas at San Antonio ( email )

1 UTSA Circle
San Antonio, TX 78249
United States
210-458-6324 (Phone)

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