Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

We study the effect of stock market integration on the cost of capital and investment, using Brazil as a case study. We show that integration, as proxied by foreign ownership, has a positive impact on the financing side by reducing cost of capital. On the output side, we find that integration increases corporate investment, but only for well-governed firms. We contribute to the debate on the pros and cons of financial globalization, particularly by providing evidence of important linkages between financial integration and real economic activity.