NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Real Effects of Capital Controls: Firm-Level Evidence from a Policy Experiment

Laura Alfaro, Anusha Chari, Fabio Kanczuk

NBER Working Paper No. 20726
Issued in December 2014, Revised in June 2017
NBER Program(s):Asset Pricing, Corporate Finance, International Finance and Macroeconomics, International Trade and Investment

This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. On average, there is a statistically significant drop in cumulative abnormal returns consistent with an increase in the cost of capital for Brazilian firms following capital control announcements. Large firms and the largest exporting firms appear less negatively affected compared to external-finance-dependent firms, and capital controls on equity inflows have a more negative announcement effect on equity returns than those on debt inflows. Overall, the findings have implications for macro-finance models that abstract from heterogeneity at the firm level to examine the optimality of capital control taxation.

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Document Object Identifier (DOI): 10.3386/w20726

Published: Laura Alfaro & Anusha Chari & Fabio Kanczuk, 2017. "The real effects of capital controls: Firm-level evidence from a policy experiment," Journal of International Economics, vol 108, pages 191-210.

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