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Credit Market Freedom and Corporate Decisions

Alfonsina Iona (), Andrea Calef and Ifigenia Georgiou
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Alfonsina Iona: School of Economics and Finance, Queen Mary University of London, London E1 4NS, UK
Ifigenia Georgiou: Department of Accounting, Economics and Finance, School of Business, University of Nicosia, 2417 Nicosia, Cyprus

Mathematics, 2023, vol. 11, issue 7, 1-13

Abstract: In this paper, we investigate whether and to what extent credit market freedom affects a firm’s target level of investment, cash holdings, and leverage. To do so, we generalize the standard empirical models, commonly used in the finance literature to estimate those targets, in order to incorporate credit market freedom into the set of regressors. We estimate three augmented models on a large and heterogeneous sample of North American nonfinancial firms over the period 2000–2019. Our empirical results suggest that greater credit market freedom is associated with a healthier corporate capital structure, higher financial flexibility, and a friendlier investment environment. Our paper contributes to both economic freedom and finance literatures by investigating an unexplored issue in economics and corporate finance research. In addition, it informs policymakers that promoting financial reforms that increase credit market freedom can boost a country’s economic growth.

Keywords: economic freedom; corporate decisions; capital structure (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2023
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