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Capital Market Financing and Firm Growth

Tatiana Didier (), Ross Levine (), Ruth Llovet Montanes () and Sergio Schmukler ()
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Ruth Llovet Montanes: World Bank

No 166, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper studies whether there is a connection between finance and growth at the firm level. It employs a new dataset of 150,165 equity and bond issuances around the world, matched with income and balance sheet data for 62,653 listed firms in 65 countries over 1990-2016. Three main patterns emerge from the analyses. First, firms that choose to issue in capital markets use the funds raised to grow by enhancing their productive capabilities, increasing their tangible and intangible capital and the number of employees. Growth accelerates as firms raise funds. Second, the faster growth is more pronounced among firms that are more likely to face tighter financing constraints, namely, small, young, and high-R&D firms. Third, capital market issuances are associated with faster growth among firms located in countries with more developed capital markets relative to banks. Capital markets are also comparatively effective at allowing financially constrained firms to raise capital.

Keywords: bond markets; capital market development; capital raising; equity markets; financial structure; firm dynamics; firm financing; firm size (search for similar items in EconPapers)
JEL-codes: F65 G10 G31 G32 L25 O10 O16 O40 (search for similar items in EconPapers)
Pages: 62
Date: 2020-08
New Economics Papers: this item is included in nep-cfn, nep-ent, nep-fdg and nep-sbm
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