RFS Advance Access originally published online on February 20, 2009
Review of Financial Studies 2009 22(11):4715-4752; doi:10.1093/rfs/hhp001
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On the Growth Effect of Stock Market Liberalizations
Indiana University
London School of Economics
Send correspondence to Kathy Yuan, Department of Finance, London School of Economics, Houghton Street, London, UK, WC2A 2AE.
JEL Classification: E32, F30, F36, F43, G15, G18, G28
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Abstract |
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We investigate the effect of a stock market liberalization on industry growth in emerging markets. Consistent with the view that liberalization reduces financing constraints, we find that industries that are more externally dependent and face better growth opportunities grew faster following liberalization. However, this growth increase appears to come from an expansion in the size of existing firms rather than through the entry of financially constrained new firms. We show that following liberalization, new firm growth occurs in countries and industries with lower entry barriers. Hence, liberalization has a more uniform growth impact if accompanied by competition-enhancing reforms.
We thank Chris Lundblad for sharing data. We also thank the Editor, Joel Hasbrouck, an anonymous referee, John DiNardo, Cam Harvey, Peter Henry, Rene Stulz, and Linda Tesar for helpful comments.