Financial Capacity and Discontinuous Investment: Evidence from Emerging Market Multibusiness Firms

I provide a new characterization of internal capital markets in an emerging economy using daily divisional data on all Peruvian fish-processing firms. A regression discontinuity model exploiting government production bans on regulated divisions ("fishmeal") shows that the increased investm...

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Bibliographic Details
Published in:The Review of financial studies 2013-09, Vol.26 (9), p.2375-2410
Main Author: Natividad, Gabriel
Format: Article
Language:English
Subjects:
Agricultural industry
Anchovies
Bans
Business structures
Capital investments
Capital market
Capital markets
Exports
Financial investments
Fish production
Foreign direct investment
International trade
Investment analysis
Investment value
Investments
Latin America
Mortgage loans
Participating loans
Personal finance
Peru
Productivity
Regression analysis
Studies
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Summary:I provide a new characterization of internal capital markets in an emerging economy using daily divisional data on all Peruvian fish-processing firms. A regression discontinuity model exploiting government production bans on regulated divisions ("fishmeal") shows that the increased investment in the nonfishmeal divisions due to the bans is substantial (over 30% of the mean value), after controlling for productivity. The redeployment of financial capacity into nonfishmeal investments is particularly sharper when external financing is more costly and when firms are more closely monitored by creditors. The value-creating nature of this redeployment is supported by its positive effects on nonfishmeal exports.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hht002