Do Debt Flows Crowd Out Equity Flows or the Other Way Round?

Assaf Razin, Efraim Sadka and Chi-Wa Yuen
Additional contact information
Efraim Sadka: Eitan Berglas School of Economics, Tel Aviv University
Chi-Wa Yuen: School of Economics and Finance, University of Hong Kong

No 3, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: In the presence of asymmetric information, the stage at which financing decisions are made about investment projects in a small open economy is crucial for the composition of international capital inflows as well as for the efficiency of channeling savings into investment. This paper compares the implications of two extreme cases regarding the information possessed by the firms at their financing stage for whether inflows of foreign debt may crowd out foreign equity or the other way round. The scope for corrective tax policies is examined. We also provide a welfare comparison between the two mechanisms of capital flows.

Keywords: Debt and equity flows; Asymmetric information; Bankruptcy cost; Market failures; Corrective taxation (search for similar items in EconPapers)
JEL-codes: D82 F21 H21 (search for similar items in EconPapers)
Pages: 16 pages
Date: 1999-05, Revised 2000-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published in Annals of Economics and Finance, May 2000, pages 33-47

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http://down.aefweb.net/WorkingPapers/w3.pdf (application/pdf)

Related works:
Journal Article: Do Debt Flows Crowd Out Equity Flows or the Other Way Round? (2000)
Working Paper: Do Debt Flows Crowd Out Equity Flows Or the Other Way Round? (2000)
Working Paper: Do Debit Flows Crowd out Equity Flows or the other way Round? (1998)
Working Paper: Do Debt Flows Crowd out Equity Flows or the Other Way Round? (1998)
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