Corporate Investments in Asian Emerging Markets: Financial Conditions, Financial Development, and Financial Constraints

Jianxin Wang, Maria Socorro Gochoco-Bautista and Noli Sotocinal

No 346, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Motivated by the literature on the finance–growth nexus, this paper explores the mechanisms through which finance affects corporate investments and capital accumulation. We separate the effects of financial conditions from those of financial development. Based on a sample of firms from five Asian emerging economies, we find that (1) financial conditions and financial development affect corporate investments through different channels. Financial conditions affect firms’ growth opportunities and investment demand. Financial development primarily affects firms’ external financing constraints. (2) Large firms benefit more from improved financial conditions, while small firms benefit more from financial development. (3) The effects of financial conditions and the level of financial development are asymmetric: they are stronger when the global financial crisis was unfolding and weaker during the subsequent rebound.

Keywords: corporate investments; investment sensitivity to cash flows; financial condition index; financial development index; financial constraints (search for similar items in EconPapers)
Pages: 18 pages
Date: 2013-07-20
Note: http://www.adb.org/sites/default/files/pub/2013/ewp-346.pdf
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Corporate Investments in Asian Markets: Financial Conditions, Financial Development, and Financial Constraints (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbewp:0346

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