NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Capital Inflows, Equity Issuance Activity, and Corporate Investment

Charles W. Calomiris, Mauricio Larrain, Sergio L. Schmukler

NBER Working Paper No. 24433
Issued in March 2018
NBER Program(s):The Corporate Finance Program, The Development Economics Program, The International Finance and Macroeconomics Program, The International Trade and Investment Program

We use issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. We show that foreign inflows are strongly correlated with country-level issuance. The relation reflects the behavior of large issuers issuing in domestic equity markets and that of firms issuing in international markets. Those larger, more liquid, and highly valued firms are the ones more likely to raise equity when their country receives capital inflows. To identify supply-side shocks, we instrument capital inflows into each country with exogenous changes in other countries’ attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented inflows lead a subset of firms (large domestic issuers and foreign issuers) to raise new equity, which they use mainly to fund investment. Corporate investment increases between one-tenth and four-tenths the amount of foreign equity capital entering the country.

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Document Object Identifier (DOI): 10.3386/w24433

 
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