DO EXTERNAL FUNDS YIELD LOWER RETURNS ? RECENT EVIDENCE FROM EAST ASIAN ECONOMIES

Sarmistha Pal () and Nigel L. Driffield ()

Finance from EconWPA

Abstract: Using a large firm level panel data set from four Asian countries, this paper compares the returns to various internal and external funds. A novel feature of our analysis is that we distinguish between financially constrained and unconstrained firms and determine selectivity-corrected estimates of rates of return to internal and external funds in markets characterised by information problems. Results derived from a unique random effects panel data model with selection and unobserved heterogeneity suggest evidence of significant misallocation, especially in external financing of investment. While these results contrast some of the existing results, they seem to complement the moral hazard arguments put forward by the macro literature on the recent Asian crisis.

Keywords: Efficiency; Misallocation of capital; Returns to internal and external funds; Debt and equity; Financial constraint; Random effects model with selection (search for similar items in EconPapers)
JEL-codes: G32 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn
Date: 2003-09-04, Revised 2004-03-15
Note: Type of Document - ; pages: 25
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http://129.3.20.41/eps/fin/papers/0309/0309002.pdf (application/pdf)

Related works:
Working Paper: DO EXTERNAL FUNDS YIELD LOWER RETURNS? RECENT EVIDENCE FROM EAST ASIAN ECONOMIES (2005)
Journal Article: Do external funds yield lower returns?: Recent evidence from East Asian economies (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0309002

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