Working Paper: NBER ID: w11894
Authors: Ross Levine; Sergio Schmukler
Abstract: What is the impact of internationalization (firms raising capital and trading in international markets) on the liquidity of the remaining firms in domestic markets? To address this question, we assemble a panel database of nearly 2,900 firms from 45 emerging economies over the period 1989-2000, constructed from annual and daily data. First, we find evidence of migration. The domestic trading of firms that cross-list or issue depositary receipts in foreign public exchanges tends to decrease, while a significant proportion of their trading activity concentrates in international markets. Second, this migration is negatively related to the liquidity of the remaining firms in their home market through two separate channels. There are liquidity spillovers within markets, with aggregate domestic trading activity being positively associated with the liquidity of individual firms in the same market. Moreover, the proportion of trading abroad is negatively related to the liquidity of firms in the domestic market.
Keywords: No keywords provided
JEL Codes: I15; F36; F20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Internationalization (F30) | Decrease in domestic trading activity (F69) |
| Decrease in domestic trading activity (F69) | Decrease in liquidity of remaining domestic firms (G33) |
| Aggregate trading activity of international firms (G15) | Improvement in liquidity of individual domestic firms (G32) |
| Share of trading occurring abroad (F10) | Decrease in liquidity of domestic firms (G32) |