TAILIEUCHUNG - Do Stock Market Liberalizations Cause Investment Booms?

However, such decisions should be weighed against all other factors, including regulatory capital requirements for certain financial institutions and the increased volatility in earnings or other comprehensive income that could result from temporary fluctuations in the market value of debt securities classified as trading or available-for-sale, respectively, and the impact of that volatility on the entity. For example, such volatility could result in debt covenant violations arising from unrealized holding losses when shareholders’ equity is included in debt covenant computations; however, as most entities’ loan documents have been modified to exclude other comprehensive income from debt covenant computations, this concern. | Do Stock Market Liberalizations Cause Investment Booms Peter Blair Henry April 2000 Forthcoming Journal of Financial Economics Abstract Stock market liberalizations lead private investment booms. In a sample of 11 developing countries that liberalized their stock markets 9 experience growth rates of private investment above their non-liberalization median in the first year after liberalizing. In the second and third years after liberalization this number is 10 of 11 and 8 of 11 respectively. The mean growth rate of private investment in the three years immediately following stock market liberalization exceeds the sample mean by 22 percentage points. The evidence stands in sharp contrast to recent work that suggests capital account liberalization has no effect on investment. JEL classification F3 F4 G15 Keywords capital account liberalization investment capital flows emerging markets Peter Blair Henry Graduate School of Business Stanford University Stanford CA 94305-5015 Author Tel. 650 723-0905 fax 650 725-0468 E-mail address pbhenry@ This paper is a revised version of Chapter 2 of my . thesis at the Massachusetts Institute of Technology. I thank Christian Henry and Lisa Nelson for their support and encouragement. I am grateful to Steve Buser Paul Romer William Schwert the editor Andrei Shleifer Jeremy Stein and two anonymous referees whose detailed comments on an earlier draft substantially improved the paper. I also thank Olivier Blanchard Rudi Dornbusch Stanley Fischer Jerry Hausman Chad Jones Jim Poterba Robert Solow René Stulz Sheridan Titman Ingrid Werner and seminar participants at Georgetown the NBER Conference on Macroeconomic Effects of Corporate Finance Stanford UC-Irvine and UCLA. The International Finance Corporation and the Research Foundation of Chartered Financial Analysts generously allowed me to use the Emerging Markets Data Base. Ross Levine generously shared his extensive list of capital control liberalization dates. Finally I .

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