Corporate Investment in Emerging Markets: Financing vs. Real Options Channel
IMF Working Papers, December 30, 2015
Source details
- Canonical URL
- Corporate Investment in Emerging Markets: Financing vs. Real Options Channel
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Bibliographic details
- Authors: Delong Li, Nicolas E Magud, Fabian Valencia
- Published: December 30, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513539935.001
Summary
- Examines how firm and country heterogeneity shape the response of corporate investment in emerging markets to changes in global interest rates and volatility.
- Tests for presence of:
- a financing channel originating from changes in the costs of external borrowing, and
- a real options channel reflecting firms’ option values to delay investment.
- Main conclusion: evidence of the coexistence of both channels.
Key findings
- Financially weaker firms reduce investment by more in response to higher interest rates or volatility.
- Firms with stronger balance sheets become less willing to invest after volatility spikes.
- The intensity of the financing channel diminishes for firms in countries with:
- lower public debt,
- higher foreign reserves, or
- deeper financial markets.
Subjects and keywords (as listed)
- Subjects: Asset and liability management, Corporate investment, Currencies, Emerging and frontier financial markets, Financial markets, Liquidity indicators, Liquidity management, Money, National accounts, Public debt
- Keywords: cash flow ratio, Corporate investment, Currencies, Emerging and frontier financial markets, financial frictions, financing channel, Global, interest rate shock, Investment, investment schedule, Liquidity management, net leverage, real options, standard deviation, uncertainty shocks, WP