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Does Financial Liberalization Reduce Financing Constraints?

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This paper uses panel data on a large number of firms in 13 developing countries to find out whether financial liberalization relaxes financing constraints of firms. We find that liberalization affects small and large firms differently. Small firms are financially constrained before the start of the liberalization process, but become less so after liberalization. Financing constraints of large firms, however, are low before financial liberalization, but become higher as financial liberalization proceeds. We hypothesize that financial liberalization has adverse effects on the financing constraints of large firms, because these firms had better access to preferential directed credit during the period before financial liberalization.

Elsevier BV

Title: Does Financial Liberalization Reduce Financing Constraints?

Description:

This paper uses panel data on a large number of firms in 13 developing countries to find out whether financial liberalization relaxes financing constraints of firms.

We find that liberalization affects small and large firms differently.

Small firms are financially constrained before the start of the liberalization process, but become less so after liberalization.

Financing constraints of large firms, however, are low before financial liberalization, but become higher as financial liberalization proceeds.

We hypothesize that financial liberalization has adverse effects on the financing constraints of large firms, because these firms had better access to preferential directed credit during the period before financial liberalization.

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