Working Paper: NBER ID: w20726
Authors: Laura Alfaro; Anusha Chari; Fabio Kanczuk
Abstract: This paper evaluates the effects of capital controls on firm-level stock returns and real investment using data from Brazil. On average, there is a statistically significant drop in cumulative abnormal returns consistent with an increase in the cost of capital 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 inflows have a more negative announcement effect on equity returns than those on debt inflows. Overall, the findings have implications for macro-finance models that abstract from heterogeneity at the firm level to examine the optimality of capital control taxation.
Keywords: capital controls; firm-level evidence; Brazil; stock returns; real investment
JEL Codes: F3; F4; G11; G15; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| firm size (L25) | cumulative abnormal returns (CARs) (C22) |
| external finance dependence (O19) | cumulative abnormal returns (CARs) (C22) |
| capital control announcements (F32) | cumulative abnormal returns (CARs) (C22) |
| capital control announcements (F32) | cost of capital (G31) |
| increased market interest rates (E43) | cumulative abnormal returns (CARs) (C22) |
| capital control announcements (F32) | expected future cash flows for exporting firms (F10) |
| equity controls (G34) | cumulative abnormal returns (CARs) (C22) |
| debt controls (H63) | cumulative abnormal returns (CARs) (C22) |