Global Liquidity and Corporate Financing in Emerging Asia

Vidhan Goyal and Frank Packer ()
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Frank Packer: Regional Adviser in the Representative Office for Asia and the Pacific

No 2019-35, HKUST IEMS Thought Leadership Brief Series from HKUST Institute for Emerging Market Studies

Abstract: When corporate debt is measured relative to assets, there is little evidence of an increase in leverage. Corporate leverage in Asia is generally stable. This contrasts sharply with what we observed ahead of the Asian financial crisis of the late 1990s. The legal environment and quality of institutions has an important influence on the capital structure of Asian firms. Leverage increases with the strength of creditor rights, political stability, and efficiency of resolution of insolvencies. Accommodative monetary policies in the U.S. since the global financial crisis has resulted in greater use of debt financing in countries with stronger institutions. Foreign investors prefer to invest in better governed firms since they are at an informational disadvantage relative to local investors. These policies have also resulted in higher capital expenditures by firms in countries with stronger institutions. Furthermore, global liquidity relaxes the financing constraints of firms.

Keywords: corporate finance; finance; Asia; Emerging Markets (search for similar items in EconPapers)
Pages: 4 pages
Date: 2019-10, Revised 2019-10
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