Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Hillier, David; Loncan, Tiago

doi:10.1111/eufm.12147

Cited by 20 publications

(24 citation statements)

References 93 publications

(188 reference statements)

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“…The results of the regression models suggest that SML significantly reduces cost of capital in the stock markets of EIC. This finding is consistent with the literature including Bekaert and Harvey (2000a), Henry (2000a), Kim and Singal (2000), Huang (2008) and Hillier and Loncan (2019). Furthermore, the literature generally defines the stock markets of EIC as such; poor-quality of information flow, high trading costs, disintermediation and less competition.…”

Section: Discussionsupporting

confidence: 91%

Stock market liberalization: implications on cost of capital in emerging Islamic countries

Ilhan

2019

JCMS

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Purpose Most of the major Islamic countries’ stock exchanges have not been able to perform at the same pace with the major emerging countries’ stock exchanges since the mid of 1990s. The purpose of this paper is to examine the implications of stock market liberalization on cost of capital as one of the crucial driver to stock market development and physical investment growth in emerging Islamic countries. Design/methodology/approach This study employs static panel data techniques on the sample of seven emerging Islamic countries over the years 1989-2008. Findings The findings of this study suggest that stock market liberalization significantly reduces cost of capital in the stock markets of sample Islamic countries, which carries policy-oriented implications. Reduction in the cost of capital increases the number of exchange-traded companies, profitability of projects and aggregate investment level; therefore, the study findings are highly concerned by the economic policymakers, corporations and investors alike. Research limitations/implications In the literature, different proxies are employed to measure stock market liberalization and cost of capital as well. Due to data limitations, this study could not employ different proxies for both, especially for stock market liberalization, for robustness purpose. That limitation further restricted the coverage of Islamic stock markets and time period. Therefore, generalization of the study results for overall Islamic stock markets can be slightly drawn. Originality/value The paper provides further understanding regarding the effects of SML on cost of capital, thereby indirectly on the stock market development, in the context of EIC.

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Section: Discussionsupporting

confidence: 91%

Stock market liberalization: implications on cost of capital in emerging Islamic countries

Ilhan

2019

JCMS

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“…We have learned from this literature that foreign institutions, instead of being locusts, actually bring about numerous beneficial effects for invested firms. Foreign institutions, against criticisms, are shown to foster long-term value creation by enhancing capital allocation via investments and innovations (Bena et al, 2017;Luong et al, 2017), improve corporate governance and monitoring (Huang & Zhu, 2015;Aggarwal et al, 2011), lower the cost of equity capital (Hillier & Loncan, 2017), and reduce stocks' liquidity commonality via more transparent corporate policies (Deng et al, 2018).…”

Section: Accepted Manuscriptmentioning

confidence: 99%

“…Models include year and industry fixed effects, and are estimated with heteroskedasticity-robust standard errors. * * * Significant at 0.01 level; * * Significant at 0.05 level; * Significant at 0.1 level.. (Bena et al, 2017;Hillier & Loncan, 2017;Aggarwal et al, 2011). This variable is calculated as dummy, taking the value of 1 if the firm is a constituent of MSCI Emerging Markets Index, and zero otherwise, tracking both additions and deletions over time, being statistically correlated with foreign ownership (0.24, p < 0.01).…”

Section: A C C E P T E D Mmentioning

confidence: 99%

Foreign institutional ownership and corporate cash holdings: Evidence from emerging economies

Loncan

2020

International Review of Financial Analysis

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With the increased presence of foreign institutional investors in emerging stock markets, academic interest on the effects of foreign institutions on corporate managerial decisions has notably increased. This paper joins this debate by investigating the effects of foreign institutional ownership on cash holdings, a strategic corporate financing choice. Analysing a sample of firms from 23 emerging economies, the paper shows that, while foreign institutional ownership has a negative effect on cash holdings, it also increases the contribution of cash to firm valuation. These effects are potentially transmitted to cash through mitigation of agency conflicts and alleviation of financing constraints. In all, our findings suggest beneficial effects of foreign institutions on firms' financing structure, as foreign investors contribute to a more efficient and value-enhancing cash policy.

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“…Insights from the financial integration literature suggest that foreign investment exposure may also play a role in channelling the effects of political uncertainty to asset prices. The flow of equity capital to emerging economies render these markets more financially integrated with global capital markets (Hillier & Loncan, 2017). While the process of integration is shown to bring about benefits, in particular increases in stock prices (Chari & Henry, 2004), a crucial determinant of the level of financial integration is institutional quality (Carrieri et al , 2013).…”

Section: Theory and Hypothesis Developmentmentioning

confidence: 99%

Political uncertainty and Stock returns: Evidence from the Brazilian Political Crisis

Hillier

Loncan

2019

Pacific-Basin Finance Journal

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This paper examines the effect of political uncertainty on stock returns, exploiting an exogenous shock to political stability in Brazil. In May, 2017, a conversation between Brazil's President and a businessman was bugged by Brazilian Police and leaked to the media. This led to sudden political instability and a collapse in the equity market. We decompose the cross-sectional variation of abnormal returns around this event and investigate whether corporate political connections and exposure to foreign capital were factors in the price falls. Our results show that firms connected with the Brazilian state-owned development bank, BNDES, and firms cross-listed via ADRs (American Depositary Receipts) were most affected by this shock. The evidence suggests that political connections and foreign capital exposure are factors in channeling political risk to asset prices, increasing the cost of equity capital during periods of political instability.

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Stock market integration, cost of equity capital, and corporate investment: Evidence from Brazil

Cited by 20 publications

References 93 publications

Stock market liberalization: implications on cost of capital in emerging Islamic countries

Stock market liberalization: implications on cost of capital in emerging Islamic countries

Foreign institutional ownership and corporate cash holdings: Evidence from emerging economies

Political uncertainty and Stock returns: Evidence from the Brazilian Political Crisis

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