The Real Effects of Capital Controls: Financial Constraints, Exporters, and Firm Investment

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The Real Effects of Capital Controls: Financial Constraints, Exporters, and Firm Investment

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Title: The Real Effects of Capital Controls: Financial Constraints, Exporters, and Firm Investment
Author: Alfaro, Laura; Chari, Anusha; Kanczuk, Fabio

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Citation: Alfaro, Laura, Anusha Chari, and Fabio Kanczuk. "The Real Effects of Capital Controls: Financial Constraints, Exporters, and Firm Investment." Harvard Business School Working Paper, No. 15-016, September 2014. (Revised November 2014.)
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Abstract: In aftermath of the global financial crisis of 2008–2009, emerging-market governments have increasingly restricted foreign capital inflows. The data show a statistically significant drop in cumulative abnormal returns 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 have a more negative announcement effect than those on debt. Real investment falls following the controls. Overall, the results suggest that capital controls segment international financial markets, increase the cost of capital, reduce the availability of external finance, and lower firm-level investment.
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:13350450
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