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Capital market imperfections before and after financial liberalization : a Euler Equation approach to panel data for Ecuadorian firms

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Author Info
Jaramillo, Fidel
Schiantarelli, Fabio
Weiss, Andrew

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Abstract

Using a large set of panel data for Ecuadorian firms, the authors analyze the role of capital market imperfections in investment decisions and investigate whether the financial reforms introduced in the 1980s in Ecuador succeeded in relaxing financial constraints. To facilitate capital accumulation and growth, the Ecuadorian government removed administrative controls on the interest rate and eliminated or scaled down directed credit programs. The model used here allows both for an increasing cost of borrowing, as the degree of leverage increases, and for a ceiling on leverage. The econometric results suggest that both types of capital market imperfections are important for small and young firms, but not for large and old firms. Moreover, the estimated equations do not provide evidence that financial reform in Ecuador has helped to relax these financial constraints.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1091.

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Date of creation: 28 Feb 1993
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Handle: RePEc:wbk:wbrwps:1091

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Related research
Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; International Terrorism&Counterterrorism; Financial Intermediation;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Stephen Bond & Costas Meghir, 1990. "Dynamic Investment Models and the Firm's Financial Policy," CEPR Financial Markets Paper 0013, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 53--56 Great Sutton Street, London EC1V 0DG.
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  2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July. [Downloadable!] (restricted)
  3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  5. Toni M. Whited, 1990. "Debt, liquidity constraints, and corporate investment: evidence from panel data," Finance and Economics Discussion Series 114, Board of Governors of the Federal Reserve System (U.S.).
  6. Mark Gertler & R. Glenn Hubbard & Anil Kashyap, 1990. "Interest Rate Spreads, Credit Constraints, and Investment Fluctuations: An Empirical Investigation," NBER Working Papers 3495, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Jaramillo, Fidel & Schiantarelli, Fabio & Weiss, Andrew, 1993. "The effect of financial liberalization on allocation of credit : panel data evidence for Ecuador," Policy Research Working Paper Series 1092, The World Bank. [Downloadable!]
  9. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257. [Downloadable!] (restricted)
  10. Calomiris, Charles W & Hubbard, R Glenn, 1990. "Firm Heterogeneity, Internal Finance, and 'Credit Rationing.'," Economic Journal, Royal Economic Society, vol. 100(399), pages 90-104, March. [Downloadable!] (restricted)
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  11. Gertler, M.L. & Hubbard, R.G., 1988. "Financial Factors In Business Fluctuations," Papers fb-_88-37, Columbia - Graduate School of Business.
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  12. Nabi, Ijaz, 1989. "Investment in Segmented Capital Markets," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 453-62, August. [Downloadable!] (restricted)
  13. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  14. Tybout, James R, 1983. "Credit Rationing and Investment Behavior in a Developing Country," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 598-607, November. [Downloadable!] (restricted)
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