External Financing Dependence and Corporate Saving in ASEAN5

IMF Working Papers, October 30, 2020

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Using firm-level data on ASEAN5, this paper studies the differential effects of macro-financial and structural factors on corporate saving behavior through the lens of external financing dependence.
The finding suggests that non-financial corporations in ASEAN5 have been subject to binding financial constraints over the past two decades.
Greater capital account openness or exchange rate depreciation reduces the average saving rate of industries with low dependence on external funds, while it increases the saving rate of industries with high dependence on external funds.
The effects are greater for export-oriented industries.
An improvement in banking sector competition, banks’ lending efficiency, or policy clarity is associated with lower saving rate of firms across the board.

Non-financial corporations in ASEAN5: subject to binding financial constraints over the past two decades.
Capital account openness: reduces average saving rate for industries with low external financing dependence; increases saving rate for industries with high external financing dependence.
Exchange rate depreciation: same directional effects as capital account openness—reduces saving for low-dependence industries; increases saving for high-dependence industries.
Export orientation: amplifies the effects of capital account openness and exchange rate depreciation.
Banking sector improvements (competition, lending efficiency) and improved policy clarity: associated with lower firm saving rates across industries.

External financing dependence: used as the lens to differentiate industries’ responses to macro-financial and structural changes.
Precautionary saving behavior: heightened in industries with high external financing dependence when faced with greater capital account openness or exchange rate depreciation.
Financial constraints: pervasive for non-financial corporations in ASEAN5, shaping corporate saving behavior over two decades.

Financial sector reforms that increase banking competition and lending efficiency, and that improve policy clarity, may reduce corporate precautionary saving across industries.
Consideration of industry-level external financing dependence is important when assessing the impact of capital account liberalization or exchange rate movements on corporate saving.
Export-oriented industries require particular attention because macro-financial shocks and openness have amplified effects on their saving behavior.

Title: External Financing Dependence and Corporate Saving in ASEAN5
Author: Xin Li
Date: October 30, 2020
Series: Working Paper No. 2020/223
Issue: 223
Volume: 2020
Pages: 41
DOI: https://doi.org/10.5089/9781513560175.001
ISBN: 9781513560175
ISSN: 1018-5941
Subject: Balance of payments, Capital flows, Commercial banks, Corporate sector, Currencies, Financial institutions, Financial markets, Financial sector development, Money, National accounts, Precautionary savings
Keywords: ASEAN countries, capital account openness, Capital flows, Commercial banks, corporate saving, Currencies, exchange rate depreciation, exchange rate depreciation., export-orientation, external financing need, financial constraint, Financial sector development, firm's use, Global, high-tech company, Level analysis, precautionary saving theory, Precautionary savings, saving behavior, saving rate, tech firm, use of external finance, WP

IMF Working Paper: "External Financing Dependence and Corporate Saving in ASEAN5" (Working Paper No. 2020/223) by Xin Li, October 30, 2020.