Equity market liberalization and firm growth

In a sample of 686 investable firms from 26 emerging market countries, I show that equity market liberalizations do not result in an increase in externally-financed growth rates for participating firms. In fact I find mostly to the contrary. These findings are in line with recent work which shows that firms issue less and not more equity capital post-liberalization, and suggest the gains from equity market liberalizations may not be attributable to a reduction in financing constraints. c 2013 Production and hosting by Elsevier B. V. on behalf of Africagrowth Institute. in the use of external equity financing, but does result in increased firm growth, as shown by Mitton (2006). Therefore, the findings of Mitton (2006), Flavin and O'Connor (2010), and McLean 1 While there is no direct theoretical link between equity market liberalizations and corporate debt issuance, equity market liberalization may promote greater debt issuance e. g. greater use of long-term debt, if investors are nowmore willing to invest in firms that now have foreign investors. Schmukler and Vesperoni (2006) document a shift toward short-term debt for firms after stock market liberalizations. Flavin and O'Connor (2010) find to the contrary using a firmspecific (and presumably less noisy) measure of equity market liberalizations i. e. the investable measure. 2 The difference in the findings between the studies of Flavin and O'Connor (2010) and McLean et al. (2011) may be attributable to the different sample periods examined by each. The former examine the capital issuance behavior of investable (and cross-listing) firms up to and including the year 2000. The latter include all years up to and including 2008. Open access under CC BY-NC-ND license.