The Composition Matters: Capital Inflows and Liquidity Crunch During a Global Economic Crisis

By Hui Tong, Shang-jin Wei. Social Science Research Network, 2009

143 citations recorded by the source corpus.

This paper studies whether the volume and composition of capital flows affect the degree of credit crunch during the 2007-2009 crisis. Using data on 3823 firms in 24 emerging countries, we find that, on average, the decline in stock prices was more severe for firms that are intrinsically more dependent on external finance for working capital. Interestingly, while the volume of capital flows per se has no significant effect, the composition matters a lot. In particularly, greater dependence on non-FDI capital inflows before the crisis worsens the credit crunch during the crisis, while exposure to FDI alleviates the liquidity constraint.

Subfields: Astronomy and Astrophysics, Geochemistry and Petrology, Geophysics

View Paper: https://www.semanticscholar.org/paper/4cca3b01cb37afe6ef9ed5e4efc53d7ccb10cbb5

Citations in the corpus

• Global Crises and Equity Market Contagion (2012, unknown): “For instance, Tong and Wei (2011) find that the average decline in stock prices during the crisis in a sample of 4000 firms in 24 emerging countries was more severe for those firms intrinsically more dependent on external finance (in particular on bank lending and portfolio flows).”
• Firm Exports and Multinational Activity Under Credit Constraints (2011, unknown): “18 For example, see Beck (2003), Manova (2008, 2013), Iacovone and Zavacka (2009), Carluccio and Fally (2012), Tong and Wei (2010), Bricongne et al. (2012), and Chor and Manova (2012) for applications to trade. incur the same production costs and use the same tangible assets in manufacturing for…”