Working Paper: NBER ID: w24433
Authors: Charles W. Calomiris; Mauricio Larrain; Sergio L. Schmukler
Abstract: We use issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. We show that foreign inflows are strongly correlated with country-level issuance. The relation reflects the behavior of large issuers issuing in domestic equity markets and that of firms issuing in international markets. Those larger, more liquid, and highly valued firms are the ones more likely to raise equity when their country receives capital inflows. To identify supply-side shocks, we instrument capital inflows into each country with exogenous changes in other countries’ attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented inflows lead a subset of firms (large domestic issuers and foreign issuers) to raise new equity, which they use mainly to fund investment. Corporate investment increases between one-tenth and four-tenths the amount of foreign equity capital entering the country.
Keywords: Capital Inflows; Equity Issuance; Corporate Investment; Emerging Markets
JEL Codes: F21; F3; F36; F41; F62; F65; G11; G15; G3; O16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Capital inflows (F21) | equity issuance (G24) |
| Capital inflows (F21) | equity issuance for large domestic issuers (G24) |
| equity issuance (G24) | corporate investment (G31) |
| Capital inflows (F21) | corporate investment (G31) |