Financial Capacity and Discontinuous Investment: Evidence from Emerging Market Multibusiness Firms
I provide a new characterization of internal capital markets in an emerging economy using daily divisional data on all Peruvian fish-processing firms. A regression discontinuity model exploiting government production bans on regulated divisions (“fishmeal”) shows that the increased investment in the nonfishmeal divisions due to the bans is substantial (over 30 % of the mean value), after controlling for productivity. The redeployment of financial capacity into nonfishmeal investments is particularly sharper when external financing is more costly and when firms are more closely monitored by creditors. The value-creating nature of this redeployment is supported by its positive effects on nonfishmeal exports. (JEL G30, G31, G32, Q56) The pursuit of value-creating opportunities in emerging economies has become an increasingly important theme for investors and scholars. Accordingly, a growing body of research on global stock market integration, privatization waves, mergers and acquisitions, and banking has led to important lessons about financial markets in emerging economies. Yet surprisingly little is known about how real firms based in emerging economies allocate their internal capital to different investment opportunities. To address this major gap, it would be useful to understand whether and how firms in emerging economies operate their “internal capital markets, ” arguably the most active source of funding for Mark Garmaise provided generous feedback and his help is much appreciated. I am also grateful to Michael
- DOI
- 10.1093/rfs/hht002
- Volume
- 26 (9)
- Pages
- 2375-2410
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref