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Recent reforms across Eastern European countries gave more flexibility and information for parties to engage in secured debt transactions. The menu of assets legally accepted as collateral was enlarged to include movable assets (e.g., machinery and equipment). Generalized difference-in-differences tests show that firms operating more movable assets borrowed more as a result of such reforms. Those firms also invested more, hired more, and became more efficient and profitable following the changes in the contracting environment. The financial deepening we document triggered important reallocation effects: Firms affected by the reforms increased their share of fixed assets and employment in the economy.

Zonder onderwerpscode: economie

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Emerging market corporations have significantly increased their borrowing in international markets since 2008. We show that this increase was driven by large-denomination bond issuances, most of them with face value of exactly US$500 million. Large issuances are eligible for inclusion in important international market indexes. These bonds appeal to institutional investors because they are more liquid and facilitate targeting market benchmarks. We find that the rewards of issuing index-eligible bonds rose drastically after 2008. Emerging market firms were able to cut their cost of funds by roughly 100 basis points by issuing bonds with a face value equal to or greater than US$500 million relative to smaller bonds. Firms contemplating whether to take advantage of this cost saving face a tradeoff: they can benefit from the lower yields associated with large, index-eligible bonds, but they pay the potential cost of having to hoard low-yielding cash assets if their investment opportunities are less than US$500 million. Because of the post-2008 "size yield discount," many companies issued index-eligible bonds, while substantially increasing their cash holdings. The willingness to issue large bonds and hoard cash was greater for firms in countries with high carry trade opportunities that reduced the cost of holding cash. We present evidence suggesting that these post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities. These patterns are not apparent in the issuance of investment grade bonds by firms in developed economies.

Zonder onderwerpscode: economie

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This paper uses issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. It shows that foreign inflows are strongly correlated with country-level issuance. The relation reflects the behavior of large issuers issuing in domestic equity markets and that of firms issuing in international markets. Those larger, more liquid, and highly valued firms are the ones more likely to raise equity when their country receives capital inflows. To identify supply-side shocks, capital inflows into each country are instrumented with exogenous changes in other countries' attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented inflows lead a subset of firms (large domestic issuers and foreign issuers) to raise new equity, which they use to fund investment. Corporate investment increases between one-tenth and four-tenths the amount of foreign equity capital entering the country.

Capital Flows --- Capital Markets and Capital Flows --- Consumption --- Corporate Financing --- Domestic Investors --- Emerging Markets --- Finance and Financial Sector Development --- Fiscal & Monetary Policy --- Foreign Investors --- International Economics & Trade --- Investment & Investment Climate --- Macroeconomic Management --- Macroeconomics and Economic Growth --- Mutual Funds --- Non Bank Financial Institutions --- Securities Markets Policy & Regulation --- Use Of Funds

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Emerging market corporations have significantly increased their borrowing in international markets since 2008. This paper shows that this increase was driven by large-denomination bond issuances, most of them with face value of USD 500 million. Large issuances are eligible for inclusion in international market indexes, which attract institutional investors. Emerging market firms were able to cut their cost of funds by roughly 100 basis points by issuing large-denomination bonds. Firms face a tradeoff: issue large, index-eligible bonds to borrow at a lower cost (about 100 basis points) but pay the expense of hoarding cash. Because of the "size yield discount," many companies issued index-eligible bonds, increasing their cash holdings. The willingness to issue large bonds and hoard cash was greater for firms in countries with high carry trade opportunities. These post-2008 behaviors reflected a search for yield by institutional investors into higher-risk securities and are not apparent in developed economies.

Benchmark Index --- Bond Issue --- Capital Markets and Capital Flows --- Corporate Bonds --- Corporate Debt --- Corporate Finance --- Debt Markets --- Emerging Market Economies --- Emerging Markets --- Finance and Financial Sector Development --- Institutional Investor --- Mutual Funds --- Private Sector Development --- Private Sector Economics

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We use issuance-level data to study how equity capital inflows that enter emerging market economies affect equity issuance and corporate investment. We show that foreign inflows are strongly correlated with country-level issuance. The relation reflects the behavior of large issuers issuing in domestic equity markets and that of firms issuing in international markets. Those larger, more liquid, and highly valued firms are the ones more likely to raise equity when their country receives capital inflows. To identify supply-side shocks, we instrument capital inflows into each country with exogenous changes in other countries' attractiveness to foreign investors. Shifts in the supply of foreign capital are important drivers of increased equity inflows. Instrumented inflows lead a subset of firms (large domestic issuers and foreign issuers) to raise new equity, which they use mainly to fund investment. Corporate investment increases between one-tenth and four-tenths the amount of foreign equity capital entering the country.