Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms

The author examines the impact of the volatility of foreign portfolio investment on the financial constraints of small firms. Using a dataset of over 195,000 firm-year observations across 53 countries, she examines the impact of foreign portfolio investment instability on capital issuance and firm g...

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Main Author:	Knill, April M.
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ACCOUNTING ASSET VALUE ASSETS BANKING CRISES BANKRUPTCY BOOK VALUE BUSINESS CYCLES CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOW CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK COMMON STOCK CONVERTIBLE DEBT CORPORATE GOVERNANCE COST OF CAPITAL DAMAGES DEBT DIRECT INVESTMENT DISCLOSURE DIVIDENDS DOMESTIC CREDIT DOMESTIC INVESTMENT DOMESTIC INVESTORS ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXTERNAL FINANCING FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKETS FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GLOBAL CAPITAL GLOBAL CAPITAL FLOWS GROSS DOMESTIC PRODUCT GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE INFLATION INSTITUTIONAL INVESTORS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT CLIMATE INVESTMENT ENVIRONMENT INVESTMENT IMPACTS INVESTMENT REGULATIONS INVESTOR CONFIDENCE INVESTOR PROTECTION IPO IPOS LATIN AMERICAN LEADING INDICATORS LESS DEVELOPED COUNTRY LIQUIDITY MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMIC STABILITY MARKET INTEGRATION MARKET LIBERALIZATION MARKET VALUE MARKET VOLATILITY MINORITY SHAREHOLDERS MONETARY POLICIES MONEY SUPPLY NET FLOWS PORTFOLIO PORTFOLIO COMPOSITION PORTFOLIO INVESTMENT PORTFOLIO INVESTMENT FLOWS POTENTIAL DEMAND PREFERRED STOCK PROFITABILITY PROPERTY RIGHTS RISK AVERSION SALES SAVINGS SECURITIES SUBSTITUTE SUBSTITUTION TRANSPARENCY VOTING SHARES WESTERN EUROPE
Online Access:	http://documents.worldbank.org/curated/en/2005/12/6474501/taking-bad-good-volatility-foreign-portfolio-investment-financial-constraints-small-firms http://hdl.handle.net/10986/8554

id	okr-10986-8554
recordtype	oai_dc
spelling	okr-10986-85542021-04-23T14:02:43Z Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms Knill, April M. ACCOUNTING ASSET VALUE ASSETS BANKING CRISES BANKRUPTCY BOOK VALUE BUSINESS CYCLES CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOW CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK COMMON STOCK CONVERTIBLE DEBT CORPORATE GOVERNANCE COST OF CAPITAL DAMAGES DEBT DIRECT INVESTMENT DISCLOSURE DIVIDENDS DOMESTIC CREDIT DOMESTIC INVESTMENT DOMESTIC INVESTORS ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXTERNAL FINANCING FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKETS FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GLOBAL CAPITAL GLOBAL CAPITAL FLOWS GROSS DOMESTIC PRODUCT GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE INFLATION INSTITUTIONAL INVESTORS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT CLIMATE INVESTMENT ENVIRONMENT INVESTMENT IMPACTS INVESTMENT REGULATIONS INVESTOR CONFIDENCE INVESTOR PROTECTION IPO IPOS LATIN AMERICAN LEADING INDICATORS LESS DEVELOPED COUNTRY LIQUIDITY MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMIC STABILITY MARKET INTEGRATION MARKET LIBERALIZATION MARKET VALUE MARKET VOLATILITY MINORITY SHAREHOLDERS MONETARY POLICIES MONEY SUPPLY NET FLOWS PORTFOLIO PORTFOLIO COMPOSITION PORTFOLIO INVESTMENT PORTFOLIO INVESTMENT FLOWS POTENTIAL DEMAND PREFERRED STOCK PROFITABILITY PROPERTY RIGHTS RISK AVERSION SALES SAVINGS SECURITIES SUBSTITUTE SUBSTITUTION TRANSPARENCY VOTING SHARES WESTERN EUROPE The author examines the impact of the volatility of foreign portfolio investment on the financial constraints of small firms. Using a dataset of over 195,000 firm-year observations across 53 countries, she examines the impact of foreign portfolio investment instability on capital issuance and firm growth across countries and firm characteristics, in particular size. After controlling for the endogeneity of foreign portfolio investment instability, as well as for firm-, industry-, and country-level characteristics such as GDP growth, as well as the levels of foreign portfolio and direct investment, the author finds that the volatility of foreign portfolio investment is only significantly associated with a decreased ability to issue publicly-traded securities for small firms in years when nations are considered less "creditworthy." The volatility of foreign portfolio investment only hinders the growth of small firms significantly in periods when nations are deemed less "creditworthy." These results underscore both the significance of a good financial system that minimizes capital flow volatility, as well as the influence of property rights and country creditworthiness to instill confidence in foreign investors. 2012-06-20T18:54:11Z 2012-06-20T18:54:11Z 2005-12 http://documents.worldbank.org/curated/en/2005/12/6474501/taking-bad-good-volatility-foreign-portfolio-investment-financial-constraints-small-firms http://hdl.handle.net/10986/8554 English Policy Research Working Paper; No. 3797 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCOUNTING ASSET VALUE ASSETS BANKING CRISES BANKRUPTCY BOOK VALUE BUSINESS CYCLES CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOW CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK COMMON STOCK CONVERTIBLE DEBT CORPORATE GOVERNANCE COST OF CAPITAL DAMAGES DEBT DIRECT INVESTMENT DISCLOSURE DIVIDENDS DOMESTIC CREDIT DOMESTIC INVESTMENT DOMESTIC INVESTORS ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXTERNAL FINANCING FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKETS FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GLOBAL CAPITAL GLOBAL CAPITAL FLOWS GROSS DOMESTIC PRODUCT GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE INFLATION INSTITUTIONAL INVESTORS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT CLIMATE INVESTMENT ENVIRONMENT INVESTMENT IMPACTS INVESTMENT REGULATIONS INVESTOR CONFIDENCE INVESTOR PROTECTION IPO IPOS LATIN AMERICAN LEADING INDICATORS LESS DEVELOPED COUNTRY LIQUIDITY MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMIC STABILITY MARKET INTEGRATION MARKET LIBERALIZATION MARKET VALUE MARKET VOLATILITY MINORITY SHAREHOLDERS MONETARY POLICIES MONEY SUPPLY NET FLOWS PORTFOLIO PORTFOLIO COMPOSITION PORTFOLIO INVESTMENT PORTFOLIO INVESTMENT FLOWS POTENTIAL DEMAND PREFERRED STOCK PROFITABILITY PROPERTY RIGHTS RISK AVERSION SALES SAVINGS SECURITIES SUBSTITUTE SUBSTITUTION TRANSPARENCY VOTING SHARES WESTERN EUROPE
spellingShingle	ACCOUNTING ASSET VALUE ASSETS BANKING CRISES BANKRUPTCY BOOK VALUE BUSINESS CYCLES CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOW CAPITAL INFLOWS CAPITAL MARKET CAPITAL MARKETS CAPITAL STOCK COMMON STOCK CONVERTIBLE DEBT CORPORATE GOVERNANCE COST OF CAPITAL DAMAGES DEBT DIRECT INVESTMENT DISCLOSURE DIVIDENDS DOMESTIC CREDIT DOMESTIC INVESTMENT DOMESTIC INVESTORS ECONOMIC GROWTH ECONOMICS EMERGING MARKETS EXCHANGE RATE EXCHANGE RATES EXTERNAL FINANCING FINANCIAL INFORMATION FINANCIAL INSTITUTIONS FINANCIAL MARKET FINANCIAL MARKETS FIXED ASSETS FOREIGN CAPITAL FOREIGN DIRECT INVESTMENT FOREIGN EXCHANGE FOREIGN INVESTMENT FOREIGN INVESTORS GDP GLOBAL CAPITAL GLOBAL CAPITAL FLOWS GROSS DOMESTIC PRODUCT GROSS DOMESTIC PRODUCT PER CAPITA GROWTH RATE INFLATION INSTITUTIONAL INVESTORS INTEREST RATES INTERNATIONAL INVESTORS INVESTMENT CLIMATE INVESTMENT ENVIRONMENT INVESTMENT IMPACTS INVESTMENT REGULATIONS INVESTOR CONFIDENCE INVESTOR PROTECTION IPO IPOS LATIN AMERICAN LEADING INDICATORS LESS DEVELOPED COUNTRY LIQUIDITY MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMIC STABILITY MARKET INTEGRATION MARKET LIBERALIZATION MARKET VALUE MARKET VOLATILITY MINORITY SHAREHOLDERS MONETARY POLICIES MONEY SUPPLY NET FLOWS PORTFOLIO PORTFOLIO COMPOSITION PORTFOLIO INVESTMENT PORTFOLIO INVESTMENT FLOWS POTENTIAL DEMAND PREFERRED STOCK PROFITABILITY PROPERTY RIGHTS RISK AVERSION SALES SAVINGS SECURITIES SUBSTITUTE SUBSTITUTION TRANSPARENCY VOTING SHARES WESTERN EUROPE Knill, April M. Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
relation	Policy Research Working Paper; No. 3797
description	The author examines the impact of the volatility of foreign portfolio investment on the financial constraints of small firms. Using a dataset of over 195,000 firm-year observations across 53 countries, she examines the impact of foreign portfolio investment instability on capital issuance and firm growth across countries and firm characteristics, in particular size. After controlling for the endogeneity of foreign portfolio investment instability, as well as for firm-, industry-, and country-level characteristics such as GDP growth, as well as the levels of foreign portfolio and direct investment, the author finds that the volatility of foreign portfolio investment is only significantly associated with a decreased ability to issue publicly-traded securities for small firms in years when nations are considered less "creditworthy." The volatility of foreign portfolio investment only hinders the growth of small firms significantly in periods when nations are deemed less "creditworthy." These results underscore both the significance of a good financial system that minimizes capital flow volatility, as well as the influence of property rights and country creditworthiness to instill confidence in foreign investors.
format	Publications & Research :: Policy Research Working Paper
author	Knill, April M.
author_facet	Knill, April M.
author_sort	Knill, April M.
title	Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
title_short	Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
title_full	Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
title_fullStr	Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
title_full_unstemmed	Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms
title_sort	taking the bad with the good : volatility of foreign portfolio investment and financial constraints of small firms
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2005/12/6474501/taking-bad-good-volatility-foreign-portfolio-investment-financial-constraints-small-firms http://hdl.handle.net/10986/8554
_version_	1764408110028423168

Taking the Bad with the Good : Volatility of Foreign Portfolio Investment and Financial Constraints of Small Firms

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