The Quality Effect : Does Financial Liberalization Improve the Allocation of Capital?

The study documents evidence of a "quality effect" of financial liberalization on allocative efficiency, which is measured by the dispersion in Tobin's Q across firms. Based on a simple model, the authors predict that financial liberalization, by equalizing access to credit, reduces the variation in expected marginal returns. They test this prediction using a new financial liberalization index and firm-level data for five emerging markets: India, Jordan, Korea, Malaysia, and Thailand. They find strong evidence that financial liberalization, rather than financial deepening, improves allocative efficiency.
Publication date: June 2004
ISBN: 9781451853636
$15.00
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Topics covered in this book

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Finance , Finance , Tobin's Q , financial liberalization , allocative efficiency , inequality , stock market , financial deepening , stock market turnover , stock market capitalization , Financial Markets and the Macroeconomy , General Financial Markets: Government Policy and Regulation

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