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Financial Shocks and Corporate Investment in Emerging Markets

Author

Listed:
  • DELONG LI
  • NICOLAS E. MAGUD
  • FABIAN VALENCIA
Abstract
We examine how cross‐firm and cross‐country heterogeneity shapes the responses of corporate investment in emerging markets to changes in U.S. monetary policy and financial‐market volatility, the latter proxying for uncertainty. We find that in response to increases in U.S monetary policy rates or financial‐market volatility, financially weaker firms reduce investment by more than financially strong firms. We also show that firms with stronger balance sheets delay investment voluntarily when faced with higher uncertainty. Finally, we find that stronger macroeconomic fundamentals (lower public debt or higher international reserves) help to buffer corporate investment from increases in U.S. monetary policy rates.

Suggested Citation

  • Delong Li & Nicolas E. Magud & Fabian Valencia, 2020. "Financial Shocks and Corporate Investment in Emerging Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 613-644, March.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:2-3:p:613-644
    DOI: 10.1111/jmcb.12603
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    References listed on IDEAS

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    Cited by:

    1. Magud, Nicolas E. & Pienknagura, Samuel, 2024. "The return of expansionary austerity: Firms' investment response to fiscal adjustments in emerging markets," Journal of International Money and Finance, Elsevier, vol. 143(C).
    2. Klayme, Tania & Gokmenoglu, Korhan K. & Rustamov, Bezhan, 2023. "Economic policy uncertainty, COVID-19 and corporate investment: Evidence from the gold mining industry," Resources Policy, Elsevier, vol. 85(PA).
    3. Umar FAROOQ, 2023. "Trade Liberalization and Real Sector Investment Decisions: A Panel Data Evidence from Selected Economies of Asia," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 52-71, June.

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