The Impact of Investment Opportunities and Free Cash Flow on Financial Liberalization:A Cross‐Firm Analysis of Emerging EconomiesSheng‐Syan Chen, Robin K. Chou and Shu‐Fen Chou Financial Management, 2009, vol. 38, issue 3, 543-566 Abstract: This study undertakes firm‐level analysis of investment opportunities and free cash flow in an attempt to explain the source of the wealth effect of financial liberalization for 14 emerging countries. We find that the market's responses to stock market liberalization announcements are more favorable for high‐growth firms than for low‐growth firms, a result that is consistent with the investment opportunities hypothesis. We also demonstrate that firms with high cash flow experience lower announcement‐period returns associated with stock market liberalization than do firms with low cash flow. Our findings suggest that the free cash flow hypothesis dominates the corporate governance hypothesis in terms of the net effect of stock market liberalization on a firm's stock returns. We further document similar evidence with regard to banking liberalization. Finally, we demonstrate that stock market liberalization leads to the more efficient allocation of capital. Date: 2009 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:finmgt:v:38:y:2009:i:3:p:543-566 Ordering information: This journal article can be ordered from Access Statistics for this article Financial Management is currently edited by William G. Christie More articles in Financial Management from Financial Management Association International Contact information at EDIRC. |
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