Capital inflows,equity issuance activity,and corporate investment |
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| Institution: | 1. Columbia Business School, Hoover Institution, and NBER United States;2. School of Management, Pontificia Universidad Católica de Chile;3. World Bank Research Department, United States;1. ALBA Graduate Business School, The American College of Greece, 6-8 Xenias Str, 11528 Athens, Greece;2. Bank of Greece, 21 E. Venizelos Ave., 10250 Athens, Greece;3. University of Piraeus, Department of Banking and Financial Management, 80 Karaoli & Dimitriou str., 18534 Piraeus, Greece;4. Surrey Business School, University of Surrey, Guildford, Surrey, GU2 7XH, United Kingdom;1. Professor at Universitat Pompeu Fabra, Barcelona Graduate School of Economics and CEPR, Ramon Trias Fargas, 25-27 08005 Barcelona, Spain;2. Associate professor at Universidad de los Andes. Calle 19A No 1-37 Este, Bloque W, Bogotá, 111711, Colombia;1. D’Amore-McKim School of Business, Northeastern University, USA;2. Olin Business School, Washington University in St. Louis, USA;1. Department of Finance, University of Illinois Urbana-Champaign, United States;2. Department of Finance, Erasmus University Rotterdam, Netherlands;1. Banco de Portugal, Economics and Research Department, Av, Almirante Reis 71, 1150-015 Lisbon, Portugal;1. Department of Economics University of Birmingham, United Kingdom;2. Department of Economics Carleton University, United Kingdom |
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| Abstract: | This paper uses issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. It shows that foreign inflows are strongly correlated with country-level issuance. The relation especially reflects the behavior of large firms. To identify supply-side shocks, capital inflows into each country are instrumented 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 contemporaneous and lagged capital inflows lead large firms to raise new equity, which they use to fund investment. |
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