Financial Liberalization, Credit Constraints, and Collateral: Investment in the Mexican Manufacturing Sector
March 1, 1999
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Summary
This paper examines the impact of financial liberalization on fixed investment in Mexico, using establishment-level data from the manufacturing sector. It analyzes changes in cash-flow sensitivities and uses an innovative approach to explore the role of real estate as collateral and deal with a potential censoring problem. The results suggest that financial constraints were eased for small firms but not for large ones. However, banks’ reliance on collateral in their lending operations increased the importance of real estate. The results provide microeconomic evidence consistent with the role attributed to “financial accelerator” mechanisms during lending booms and during recessions that stem from financial crises.
Subject: Collateral, Credit, Currencies, Econometric analysis, Estimation techniques, Financial crises, Financial institutions, Money
Keywords: capital stock, cash flow, collateral, collaterizable net worth, cost of capital, Credit, credit rationing, Currencies, establishment level, Estimation techniques, exporting firm, financial constraints, financial situation, firm level, fixed-effects tobit, investment, investment project, lending booms, panel data, real estate, single-establishment firm, WP
Pages:
41
Volume:
1999
DOI:
Issue:
025
Series:
Working Paper No. 1999/025
Stock No:
WPIEA0251999
ISBN:
9781451844245
ISSN:
1018-5941
