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Capital market financing and firm growth

Author

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  • Didier, Tatiana
  • Levine, Ross
  • Llovet Montanes, Ruth
  • Schmukler, Sergio L.
Abstract
This paper studies whether there is a connection between finance and growth at the firm level. It employs a new dataset of 150,165 equity and bond issuances around the world, matched with income and balance sheet data for 62,653 listed firms in 65 countries over 1990–2016. Three main patterns emerge from the analyses. First, firms that choose to issue in capital markets use the funds raised to grow by enhancing their productive capabilities, increasing their tangible and intangible capital and the number of employees. Growth accelerates as firms raise funds. Second, the faster growth is more pronounced among firms that are more likely to face tighter financing constraints, namely, small, young, and high-R&D firms. Third, capital market issuances are associated with faster growth among firms located in countries with more developed capital markets relative to banks. Capital markets are also comparatively effective at allowing financially constrained firms to raise capital.

Suggested Citation

  • Didier, Tatiana & Levine, Ross & Llovet Montanes, Ruth & Schmukler, Sergio L., 2021. "Capital market financing and firm growth," Journal of International Money and Finance, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:jimfin:v:118:y:2021:i:c:s0261560621001108
    DOI: 10.1016/j.jimonfin.2021.102459
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    More about this item

    Keywords

    Bond markets; Capital market development; Capital raising; Equity markets; Financial structure; Firm dynamics; Firm financing; Firm size;
    All these keywords.

    JEL classification:

    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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