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Does Financial Liberalization Reduce Financing Constraints?

Financial Management, Vol. 32, No. 1, Spring 2003

Posted: 21 Apr 2003  

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

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Abstract

I use panel data on a large number of firms in 13 developing countries to find out whether financial liberalization relaxes financing constraints of firms. I find that liberalization affects small and large firms differently. Small firms are financially constrained before the start of the liberalization process, but become less so after liberalization. Financing constraints of large firms, however, are low before financial liberalization, but become higher as financial liberalization proceeds. I hypothesize that financial liberalization has adverse effects on the financing constraints of large firms, because these firms had better access to preferential directed credit during the period before financial liberalization.

Suggested Citation

Laeven, Luc, Does Financial Liberalization Reduce Financing Constraints?. Financial Management, Vol. 32, No. 1, Spring 2003. Available at SSRN: https://ssrn.com/abstract=388720

Luc Laeven (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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