Financial Frictions, Investment, and Institutions

WPIEA2010231 Image
Price:  $18.00

Author/Editor: Stijn Claessens, Kenichi Ueda, Yishay Yafeh
Release Date: © October, 2010
ISBN : 978-1-45520-931-6
Stock #: WPIEA2010231
Stock Status: On back-order

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Financial frictions have been identified as key factors affecting economic fluctuations and growth. But, can institutional reforms reduce financial frictions? Based on a canonical investment model, we consider two potential channels: (i) financial transaction costs at the firm level; and (ii) required return at the country level. We empirically investigate the effects of institutions on these financial frictions using a panel of 75,000 firm-years across 48 countries for the period 1990 - 2007. We find that improved corporate governance (e.g., less informational problems) and enhanced contractual enforcement reduce financial frictions, while stronger creditor rights (e.g., lower collateral constraints) are less important.


Business cycles , Corporate governance , Economic development , Financial institutions and markets , Investment

More publications in this series: Working Papers

More publications by: Stijn Claessens ; Kenichi Ueda ; Yishay Yafeh