Financial Markets, Financial Dependence, and the Allocation of Capital

Posted: 29 Jan 2009

See all articles by Jiaren Pang

Jiaren Pang

Tsinghua University - School of Economics & Management

Haibin Wu

City University of Hong Kong (CityUHK)

Date Written: October 1, 2008

Abstract

We explore one specific channel through which finance promotes growth: the allocation of capital. Using international industrial data, we find that countries with developed financial markets invest more in growing industries, and pull out more funds of declining ones. Most interestingly, this pattern is more eminent for those industries more dependent on external financing. Various robustness checks show that the results are not driven by reverse causality, omitted variables, specific countries or industries.

Keywords: Capital allocation, Financial development, Financial dependence, Investment

JEL Classification: G15, G31, D92

Suggested Citation

Pang, Jiaren and Wu, Haibin, Financial Markets, Financial Dependence, and the Allocation of Capital (October 1, 2008). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1334332

Jiaren Pang (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Haibin Wu

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
590
PlumX Metrics