metadata: authors: 0: author: Schmukler,Sergio L.
1: author: Versperoni,Esteban
count: Asia,Latin America,Caribbean
docna: 0: docna: Globalization and firms' financing
            choices - evidence from emerging economies
docty: Policy Research Working Paper
subtopic: Investment and Investment Climate,Legal Institutions of the Market Economy,Capital Markets and Capital Flows,Securities Markets Policy & Regulation,Capital Flows,Financial Sector Policy
teratopic: Macroeconomics and Economic Growth,Environment,Finance and Financial Sector Development
abstracts: cdata!: The authors investigate whether
            integration with global markets affects the financing
            choices of firms from East Asia and Latin America. Using
            firm-level data for the 1980s and 1990s, they study how
            leverage ratios, the structure of debt maturity, and sources
            of financing change when economies are liberalized and when
            firms gain access to international equity and bond markets.
            The evidence shows that integration with world financial
            markets has uneven effects. On the one hand, debt maturity
            for the average firm shortens when countries undertake
            financial liberalization. On the other hand, domestic firms
            that actually participate in international markets, get
            better financing opportunities, and extend their debt
            maturity. Moreover, firms in economies with deeper domestic
            financial systems are affected less by financial
            liberalization. Finally, they show that leverage ratios
            increase during times of crisis. In an appendix, they
            analyze the previously unstudied case of Argentina, which
            experienced sharp financial liberalization, and was hit hard
            by all recent global crises.
repnme: repnme: Globalization and firms' financing
            choices - evidence from emerging economies
display_title: Globalization and firms'
            financing choices - evidence from emerging economies
listing_relative_url: /research/2000/04/437751/globalization-firms-financing-choices-evidence-emerging-economies
topicv3: Capital Markets m1326967 332,Financial Sector Development m1327681 1920,Equity Finance m1327686 334,Investment Entry m1504647 2544,Financial Institutions m1505015 3797
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Macroeconomics and Economic Growth,Environment,Finance and Financial Sector Development
origu: Development Research Group (DECRG)
no_of_pages: 74
author_keys: 0: author_key: 142794
model_extractions: POLICY RESEARCH WORKING PAPER **2323**

# **Summary findings**

Schmukler and Vesperoni investigate whether integration with global markets affects the financing choices of firms from East Asia and Latin America. Using firm-level data for the 1980s and 1990s, they study how leverage ratios, the structure of debt maturity, and sources of financing change when economies are liberalized and when firms gain access to international equity and bond markets.

The evidence shows that integration with world financial markets has uneven effects.

On the one hand, debt maturity for the average firm shortens when countries undertake financial liberalization.

On the other hand, domestic firms that actually participate in international markets get better financing opportunities and extend their debt maturity.

Moreover, firms in economies with deeper domestic financial systems are affected less by financial liberalization.

Finally, they show that leverage ratios increase during times of crisis.

In an appendix, they analyze the previously unstudied case of Argentina, which experienced sharp financial liberalization and was hit hard **by** all recent global crises.

This paper product of Macroeconomics and Growth, Development Fa Reseach Group **-** is part of a larger effort in the group to understand financial development and financial integration. Copies of the paper are available free from tie World Bank, **18 18** H Street NW, Washington, **DC** 20433. Please contact Emily Khine, room MC3 -341, telephone 202-473-7471, fax **202-522-3518,** email address kkhineCIworldbank.org. Policy Research Working Papers are also posted on the Web at www.worldbank.org/research/workingpapers. The authors may be contacted at sschmuklercsworldbank.org or verperolbaziwam.umd.edu. April 2000. **(67** pages) _The Policy Research WVorking Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about det,elop,nent issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names oflthe authors and should e cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent._ dvlpetadfnnainerto.CpeothpaearaalberefomheW l Produced **by** the Policy Research Dissemination Center
**Globalization and Firms' Financing Choices: Evidence from Emerging Economies** e

Sergio Schmukler _The World Bank_

# **and**

Esteban Vesperoni _University ofMaryland, College Park_

**JEL Classification Codes: F3, Gl, G3**

**Keywords:** emerging markets, financing choices, financial integration, financial liberalization, financial structure, globalization, international financial markets

e are grateful to Stijn Claessens, Asli Demirgfig-Kunt, Patrick Honohan, Daniel Lederman, Ross Levine, Ragu Rajan, and Luis Serven for their useful comments and suggestions. We have also benefited from feedback received at the World Bank conference on "Financial Structure and Economic Development" and at the World Bank Latin American Brown Bag Lunch. We thank Simon Altkorn Monti, Thorsten Beck, Simeon Djankov, Jack Glen, and David Sekiguchi for help with the data. In particular, Himmat Kalsi and Ashoka Mody were very generous to share with us their compiled base on international bond issues. We gratefully thank Rina Bonfield, Federico Guerrero, Cicilia Harun, Emir Keye, and Jon Tong for excellent research assistance. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. Contact address: The World Bank, **1818** H Street NW, Washington, **DC** 20433. E-mail addresses: sschmuklerywrldbank.org and vesperon(alwam.umd.edu
# **I. Introduction**

The late 1980s and 1990s witnessed unprecedented developments in the financial sector of emerging economies. Emerging markets became more open and integrated with the rest of the world. After lifting restrictions on capital movements, countries received record high levels of capital inflow. During the 1970-80s, capital flows were mainly directed to governments or to the private sector through the banking system. Whereas, in the 1990s, capital flows took the form of foreign direct investment and portfolio flows, including bond and equity flows. Companies in emerging markets are now participating in international financial markets. Equity trading is shifting from local domestic markets to international markets. As financial markets became more global, a remarkable series of financial crises occurred, with significant spillover effects across countries. Countries open to financial flows were severely affected **by** swings in international financial markets.

Even though the recent events have generated a vast literature on globalization, financial liberalization, and financial crises, there is very little empirical evidence at the corporate level. The goal of this paper is to study the relationship between firms' financing choices and global financial integration. We focus on emerging economies, which are rapidly integrating with world markets. Both macroeconomic and microeconomic factors determine a country's financial integration within the world economy. At the macroeconomic or country level, we evaluate the impact of financial liberalization on financial structure. We also study the effects of financial crises and domestic financial development on firms' financing. At the microeconomic or firm level, we examine how firms' access to international debt and equity markets is associated with financial structure. Additionally, we analyze differences between bank-based and market-based systems. The 1
appendix section presents the results for the case of Argentina, a country not studied **by** the existing literature, which experienced a marked liberalization process and was hit hard **by** the recent crises.

Financial choices (or financial structure) are characterized **by** the following ratios: debt over equity, short-term debt over equity, long-term debt over equity, short-term debt over total debt, and retained earnings over total liabilities.' To study the effects of financial integration on financial structure, this paper uses a novel data set. We construct a large panel of non-financial companies located in East Asia and Latin America. We work with seven emerging countries that have experienced financial liberalization and crises. Our data comprise firms from Argentina, Brazil, Indonesia, Malaysia, Mexico, South Korea, and Thailand. The data cover the 1980s and 1990s. Thus, we are able to compare pre and post liberalization periods. We gather data on balance sheets, firm specific characteristics, and the actual participation of companies in international bond and equity markets.

The recent events in emerging economies and the ongoing debate in the financial and international economics literature are the main motivations for this paper. The current literature on financial structure studies the effects of firms' characteristics, financial institutions, and legal institutions on firms' financing decisions. In particular, the literature concentrates on the choice between debt and equity and the maturity structure of debt. Potential conflicts of interests between holders of different securities and certain specific characteristics of firms might affect agency costs associated with available financial instruments. Demirgiig-Kunt and Maksimovic (1994) and Aivazian, Booth, Demirgiiq-Kunt,

> **'** Note that the term "financing choices" in this paper is what other papers on corporate finance call "financial structure." In this paper, we use both terms as synonyms. However, the term "financial

2
and Maksimovic **(1999)** empirically study these issues **by** working with **10** developing countries, mostly during the 1980s. Our data set, which includes the 1990s, enables us to expand this literature **by** analyzing the effect of financial liberalization and crises on financial structure. Also, the data on access to global capital markets enable us to study the effects of financial integration at the firm level.

This paper also sheds light on the finance literature, which studies the efficiency of different financial systems in the intermediation between saving and investment. In particular, the literature discusses the pros and cons of bank-based vis-4-vis market-based models of organization.' The evaluation of managers and firms performance on the part of lenders may be an expensive activity. Therefore, there is a trade-off between liquidity of financial instruments and control of debtors.3 While market-based systems are better suited to offer liquid financial instruments to investors, bank-based systems promote long-term relationships between intermediaries and borrowers and facilitate corporate control. This implies that the different systems may be better at providing funds for different firms. Banks may be well prepared to fund start-up firms, while public markets can be better prepared to finance established firms, typically with more tangible assets.' Our data set enables us to study whether firms' financing choices are different in countries with bankbased and market-based systems. Also, we can study whether access to more developed financial markets affects bank-based and market-based systems differently.

structure" is also used to denote differences in the composition of financial systems-for example, bankbased vs. market-based financial systems.

See DemirgiAq-Kunt and Levine **(1997).**

> Financial. securities, which are quickly and cheaply exchanged in the market, can save resources allocated to exercise some control over corporations. See Bhide **(1993).**

> The need to monitor firms might lead banks to provide stage financing. This type of financing enables banks to monitor firms at different stages of the investment projects. So, the characteristics of long-term

**3**
Finally, this paper provides new evidence for the literature on international finance, which studies financial and balance of payments crises. The literature argues that financial liberalization can lead to over borrowing syndromes, increasing the likelihood of crises. McKinnon and Pill **(1997)** claim that implicit government guarantees might prompt banks to engage in moral hazard lending and drive economies to over-investment cycles. Kaminsky and Reinhart **(1999)** suggest that financial liberalization can fuel lending booms and produce exaggerated business cycles that lead to financial crises. Krugman **(1999)** argues that the deterioration of firms' balance sheets may have played a crucial role in the late Asian crisis.

The existing empirical literature in international finance only looks at aggregatelevel evidence. We complement this literature **by** providing valuable evidence at the firm level, which gives us further insights in the process of financial integration. We can directly observe whether aggregate effects-like financial liberalization and crises-affect the firms' financing choices. Moreover, **by** concentrating on the micro level, we can study differences across firms within the same macro framework. For example, do **firms** that access international financial markets change their leverage levels and the maturity composition of their debt?

The rest of the paper is organized as follows. Section II discusses the data and methodology used in the paper. Section **III** describes the effects of financial liberalization on financing choices. It also analyzes the effects of financial integration when firms access and list in international capital markets. Section IV presents the evidence for bank-based and market-based financial systems. Section V summarizes the results and concludes.

lender-borrower relationships in bank-based financing systems do not necessary imply long-term 4
Finally, the appendix section presents in detail the case of Argentina and provides a literature review.

# **II. Data and** Methodology

# II.a Data Description

Our sample contains data on firms from seven emerging economies: Argentina, Brazil, Mexico, Indonesia, Malaysia, South Korea, and Thailand. The countries in the sample are of particular interest, since they have undergone periods of financial repression, followed **by** financial liberalization and crises. Data on firms' balance sheets come from _two_ sources, the corporate finance database of the International Finance Corporation **(IFC)** and WorldScope. IFC has complee data for the 1980s; WorldScope has a large data set for mid and late 1990s. The data set contains a total of **1,973** firms. After removing outliers and firms that are in the sample for less than three years, we are left with around **800** firms., To compare the pre-liberalization period (mainly the 1980s) with the postliberalization period (mainly the 1990s), we combine data from both sources. Our sample comprises annual balance sheet data of publicly traded firms, from **1980** to **_1999.s_** Previous work on corporate finance, notably Demirgiig-Kunt and Maksimovic **(1995** and **1998)** and Aivazian, Booth, Demirgi-Kunt, and Maksimovic **(1999),** use similar data but only for the 1980s. We also add the case of Argentina, which was not studied before.

The data set contains detailed information on the capital structure of firms, but it does not include sources and uses-of-funds statements. We exclude from the sample liabilities.

**_5_**
financial firms and banks, given that there is lack of information on the maturity structure of time deposits and we are particularly interested about debt maturity. We also eliminate from the sample firms for which we have information for less than three periods. Given that available data only exist for publicly traded firms, we are mostly studying large companies.' To measure financial integration at the firm level, we construct indicators of access to international bond and equity markets. First, we use data on international bond issues **by** firms from emerging economies. The data come from the database of H. Kalsi and **A.** Mody, World Bank Prospects Group, and **JP** Morgan. The data measure the access to international bond markets. Second, to capture access to international equity markets, we use the proportional value traded on American Depositary Receipts (ADRs), in the New York Stock Exchange, and on Global Depositary Receipts (GDRs), in the London Stock Exchange. This proportion is calculated relative to the total value traded for that firm's equity in all markets. Data on ADRs and GDRs come from Bloomberg.' To measure financial liberalization in these economies, we employ the index of financial controls constructed **by** Kaminsky and Schnukler **(1999).** This is a qualitative multidimensional index of financial liberalization. The index takes into account controls on interest rates, legal restrictions for firms and banks to borrow in foreign markets, level of

> **_5_** Appendix 2 presents, for each country, the number of firms and time periods covered in the sample. **6** Data on publicly traded firms exist because firms have to submit their balance sheets regularly to the stock market authorities of each country. Accounting standards for other firms are different and there is no centralized agency that collects such data. **If** the data existed, it would be very interesting to analyze those firms.

> **'** Given the data availability, it is very difficult to obtain the proportional value traded of bonds in international markets, as we do for equity trading. That is why we use a dummy variable for access to international bond markets. Also, there is no publicly available data on the amount of outstanding ADRs

> and GDRs. That is why we use the value traded as a proxy for access to international equity markets.

**6**
reserve requirements, and restrictions for residents to acquire assets in foreign currency. High values of the index stand for high levels of financial liberalization.

> To test whether financial choices for firms in bank-based and market-based economies are different, we use the criteria in Demirgtig-Kunt and Levine **(1999).** They classify countries according to the characteristics of their financial sector. Following their

> classification, Argentina and Indonesia are bank-based financial systems, while Brazil, Mexico, Korea, Malaysia and Thailand are market-based financial systems.

# **II.b** Stylized Facts

Before proceeding with the econometric analysis, we present a general overview on the behavior of different ratios that characterize firms' financing choices. We focus here on two issues. First, we briefly describe the effects **of** international financial integration on debt-equity ratios and the maturity structure of debt contracts. Second, we contrast firms' financial structure in bank-based and market-based economies. We organize our description in Figures I-Ill. These figures portray average debt-equity ratios (for total, short-term, and long-term debt) and the proportion of short-term debt over total debt for the seven emerging economies under consideration.

Figure **I** shows annual average debt-equity ratios and maturity structure of firms with and without access to international bond markets. The data suggest that debt-equity ratios of firms with access to international markets are clearly higher during the 1980s than during the 1990s. Debt-equity ratios may be reflecting the sharp development and increasing importance of equity financing in emerging economies during the 1990s.

**7**
Figure **I** also indicates that firms with access to international bond markets have higher values of long-term debt over equity and longer maturity structure, relative to firms with no access to international bond markets. More notably, firms with access to international markets have a marked lower proportion of short-term debt over total debt after **1991.** The difference in maturity structure between firms with and without access to international bond markets increases over time, as financial integration deepens.

During the 1990s, bond markets for firms from emerging economies developed, allowing these firms to issue long-term debt. Accordingly, the financing choices for firms with access to international markets have changed in relation to the other firms' financial structure. The picture suggests that it is the evolution of long-term debt what makes the difference in the maturity structure.

Figure II presents annual average debt-equity ratios and maturity structure of firms with and without access to international equity markets. Since the access of emerging economies to international markets is a very recent phenomenon, we can only look at the effects of international equity financing during the 1990s. The data suggest that there is not a clear difference in the behavior of total debt-equity ratios of firms with and without access to equity markets. However, the figure also indicates that firms with access to international equity markets have more long-term debt and less short-term debt than firms with no access. As a consequence, the maturity structure of firms with access to international equity markets is longer.

Figure **III** shows annual average debt-equity ratios and maturity structure of firms in bank-based and market-based financial systems. These pictures offer two messages about the behavior of finns' financial structure. First, debt-equity ratios are consistently higher in

**8**
market-based economies. This relation holds both for short-term and long-term debt. This is a surprising fact, given that one would expect equity values (relative to debt) to be higher in market-based economies. Perhaps, bank-based economies are liquidity constrained, with banks not issuing enough credit to firms. Second, there are no significant differences in the maturity structure of debt in bank-based and market-based economies.

**As** discussed in the introduction, market-based systems are better suited to offer liquid financial instruments to investors, while bank-based systems promote long-term relationships between lenders and borrowers. Two possible explanations for this finding are as follows. One explanation is that greater liquidity does not necessarily imply shortterm financial instruments. In fact, market-based systems are capable to create markets that offer liquidity to long-term financial instruments. The second explanation is related to stage financing, as explained **by** Stulz **(1998).** This kind of financing does not necessarily imply that long-term lending relationships entail long-term financial instruments, because creditors might want to monitor debtors at different stages. These explanations suggest that one might not necessarily expect short-term liabilities in market-based economies and long-term liabilities in bank-based systems.

# **II.c Variables and Methodology**

The present paper studies three fundamental characteristics of firms' financial structure **by** estimating models with five different dependent variables. The three fundamental characteristics are: (i) the choice between debt and equity financing, (ii) the maturity structure of debt, and (iii) the choice between internal and external financing. The five dependent variables are as follows. The variable debt-equity tracks the evolution of

**9**
total debt and is defined as the ratio between total liabilities and the book value of equity. The variable short-term debt over equity captures the evolution of short-term debt. The variable long-term debt over equity is the ratio between long-term liabilities and the book value of equity. The fourth variable, short-term debt over total debt, captures the behavior of firms' maturity structure of debt. The fifth variable, retained earnings over total debt, describes the importance of internal financing.<sup>8</sup> The explanatory variables can be grouped in four different categories: (i) firm specific characteristics, (ii) access to international capital markets, (iii) macroeconomic factors (namely, financial liberalization, crises, and financial development), and (iv) country effects. The variables in the first category focus on **key** characteristics of firms. They accomplish two objectives in our work. On the one hand, they allow us to analyze how different firms' characteristics affect firms' financing choices during the 1980s and 1990s. Therefore, we can compare our results with the existing literature, which only focuses on the 1980s. On the other hand, these variables work as control variables in a more general model that tests how financial liberalization and access to international markets affect firms' financing choices.

Among the firm specific characteristics, the first variable is the logarithm of firms' net fixed assets, which is a proxy for the size of firms. The second variable, the ratio of firms' net fixed assets over total assets, is an indicator of asset tangibility. The third variable captures the capacity of firms to generate internal resources and is defined as the

> Instead of retained _earnings/total_ debt, the ideal variable to measure retained earnings would be retained

> earnings/total investment. However, the lack of firns' detailed flow statements does not allow us to properly define a ratio between the relevant flows. Then, we choose to measure the magnitude of retained earnings relative to the volume of 'external' obligations. Note that data on retained earnings for Mexican firms are not available.

**10**
ratio between firms' profits after taxes over total assets. Finally, we also include a variable that reflects the production mix. This is a dummy variable that takes a value of one if the firm is a producer of tradable goods, and zero otherwise. Tradable producers have the capacity to generate revenues in foreign exchange; thus, they might be able to obtain different kinds of financing.

The variables in the second category measure the effects of expanding the financing opportunities through access to international bond and equity markets. The variable capturing access to international bond markets is a dummy variable that takes a value of one for periods in which a given firm issues bonds in international capital markets, and zero otherwise.<sup>9</sup> The variable capturing access to international equity markets is defined as the monthly average of the proportion of equity traded in international markets relative to the total value traded for that firm in each year. This variable takes a value of zero for firms without access to international equity markets.

The third category involves macroeconomic factors that affect firms' financing. These factors include three variables. The first one captures financial liberalization. This variable is key in the paper, since it shows the effect of economic liberalization on financial structure. We work with the index of financial liberalization created **by** Kaminsky and Schmukler **(1999).** The index is an average of several indicators of financial liberalization in the economy. These indicators include liberalization of the domestic financial sector, as well as removals of restrictions on foreign borrowing and transactions in foreign currency. High values of the index reflect high degree of financial liberalization. The index reflects sharp liberalization processes in the following years for each country:

> **9** Notice that the variable takes a value of one only for the period in which a firm issues international debt.

11
Argentina **1991,** Brazil **1990,** Mexico **1993,** Indonesia **1992,** Malaysia **1992,** South Korea **1993,** and Thailand **1990.1o** The second variable related to macroeconomic factors is the one capturing financial crises. We construct dummy variables for the years **_1995,_ 1997, 1998,** corresponding to the Mexican crisis **_(1995)_** and Asian crisis **(1997** and **1998).** The year **1998** also captures the Russian crisis. It has been well documented that these crises had strong spillover effects on the economies under study." The last macroeconomic variable used is the degree of domestic financial development Following Demirgiq-Kunt and Levine **(1999),** we work with the sum of the stock market capitalization and liabilities of the banking sector, as a percentage of **GDP.** We compute the interaction of this variable with the financial liberalization index, to study whether financial liberalization affects financially repressed economies more than financially developed countries. Since up to now data about the degree of domestic financial development is only available until **1997,** the estimations that include this variable are displayed separately, in the appendix section.

Finally, we include country dummies to control for the nationality of firms. This is important in light of the previous work on corporate finance. For example, Demirgij9-Kunt and Maksimovic **(1995)** find that country characteristics, such as the efficiency of legal institutions and the development of capital markets in different countries, are important in explaining differences in firms' capital structure.

> **10** To check the robustness of the results, we also used a dummy variable instead of the index of financial liberalization. The dummy variable takes the value one after the dates indicated above. The results are qualitatively not different. Therefore, we report only one set of results. See papers athttp://www.worldbank.ora/research/interest/confs/past/papersfeb3-4/agenda.htm

12
We run five different panel regressions for each dependent variable. The first regression _uses_ pooled data _for_ the seven emerging econonies in the sample. **A** second _and_ third regressions analyze capital structure for the Asian and Latin American economies separately. The last two regressions focus on the contrast between bank-based and marketbased economies.

The results are displayed in Tables 1-VI. We report results from pooled ordinary least squares and _within_ estimators (or fixed effects), with robust standard errors. In this way, we are able to compare our results with those from the existing literature in corporate finance. Since _within_ estimations control for firm specific effects, these models give us intra-firm information. For example, _within_ estimates tell how deviations from each firm's average net assets affect deviations from the average debt-equity ratio. On the other hand, **OLS** estimations combine both inter-firm and intra-firm effects. Pooled **OLS** estimates do not contain firm specific effects. Then, we are able to include country specific effects and the variable that captures the production mix (whether firms produce tradable goods). These variables cannot be included in the _within_ estimations because they are perfectly collinear with firn specific effects." The **OLS** models estimated are:

> such that f=1..N _c_ = **,.,C,** and t **_= 1,..,_** _T._

Y,,,,, represents the five variables defined above,<sup>which measurethe firms'</sup> financing choices. The sub-indexes _i, c,_ and t stand for firm,, country, and time respectively.

**13**
X,c,, stands for the three variables capturing firm specific characteristics. **A,,,** denotes access to international financial markets. M,, captures the macroeconomic variables, which only vary with time but not across firms. _n,_ stands for the country effect. The variable takes the value one for all firms in country _c._ **_pi,_** stands for the production mix.

The _within_ models estimated are: _YC', f, +3' X,.c,_ **_+y' A,. +_** _O'M,,e_ **_+_** e,, _4,i.'t_ **_N(0,oa)_** such thatfi, is the firm specific effect.

The above estimations assume exogeneity of the explanatory variables. **If** some of the right hand side variables were endogenously determined, we would need to use valid instruments to avoid endogeneity biases. Given that the existing literature on corporate finance performs the estimations assuming exogeneity, our results are comparable to current results in the literature. However, to control for potential biases due to endogeneity and to check the robustness of the results, we estimate instrumental variable (IV) models.

The instruments are constructed as follows. In the case of the variables with continuous values, we use lagged values of the same variables as instruments. We work with two lags, to avoid cases for which there might be first-order autocorrelation of the residuals. This technique assumes that past values of the explanatory variables are uncorrelated with the contemporaneous error term. At the same time, past values of the explanatory variables are correlated with contemporaneous values of the explanatory variables.

> 12 _Within_ estimations include one dummy variable per firm. Thus, firm specific characteristics with no time variation and country dummies would be a perfect linear combination of firm dummies.

14
The dummy variables (firm specific characteristics and country effects) are not instrumented, except the variable capturing access to international bond markets. This latter variable might **be** endogenous, since it may be easier for firms with a certain financial structure to issue foreign bonds. Past values of this dummy variable are not suitable instruments because of its low correlation with contemporaneous values. Therefore, we construct a new instrument that indicates the degree to which capital markets are "open"f for the country where the firm resides. The instrument takes the value **I** if two conditions are fulfilled. First, markets are "open" for the country, in the sense that at least one firm from that country issues bonds in international capitad markets during that period. Second, the firm is an "international" firm, in the sense that the firm was able to issue international bonds at least once before or at the period under consideration. Otherwise, the variable takes the value **0.** This variable seems to be a valid instrument, given that the degree of market openness is expected to be uncorrelated with firm-level errors and, at the same time, it is correlated with the firm's access to international bond markets."

# **III.** Financing Choices: **Empirical Results**

This section presents the estimation results, which are displayed in Tables I-V. We first describe the effects of firm specific characteristics on financial structure, to compare our results with the existing literature. These results allow us to determine whether including the 1990s in the sample significantly change the relation between financial structure and firm characteristics. Second, we analyze how access to international financial

> **1** Future research will likely come up with alternative instrunents and further test the robustness of the results, but so far the existing literature has not proposed better instruments to deal with potential endogeneity biases.

**15**
markets affects financing choices. Third, we describe the macroeconomic effects on financial structure.

# **IH.a Firm Specific Characteristics and Financing Choices**

The results show that the variable size of firms-captured **by** the log of net fixed assets-is particularly relevant in East Asia. Larger firms have a lower level of short-term debt. This effect is relevant in the **OLS,** _within,_ and IV models. Also, larger firms have a higher level of long-term debt. This effect is significant in the **OLS** and IV estimations. Consequently, larger firms have a longer maturity structure of debt. This result holds for both East Asia and Latin America in the **OLS** and _within_ estimations, and for East Asia in the IV equations. Larger firms may have more access to credit markets, especially longterm debt markets and equity markets. These results are consistent with Demirgiiq-Kunt and Maksimovic **_(1995)_** and Aivazian, Booth, Demirgijg-Kunt, and Maksimovic **(1999).** The variable related to the tangibility of assets, net fixed assets over total assets, is statistically significant in the regressions for both East Asia and Latin America. Large tangible assets reduce debt-equity ratios, mainly through a reduction in short-term debt. As a consequence, large tangible assets extend the debt maturity structure. The effect is relevant in the **OLS** and IV regressions for East Asia and in the **OLS,** _within,_ and IV estimations for Latin America. This result is partially consistent with the work **by** Aivazian, Booth, Demirgiig-Kunt, and Maksimovic **(1999),** who find that debt-equity ratios decrease with a higher proportion of net fixed assets. The effect on the maturity structure is also consistent with the previous literature. However, in Aivizian et al., the effect works through increases in long-term debt. Finally, the finding on tangibility of assets supports the

**16**
argument **by** Morris **(1976),** according to which finns match the maturity of assets and liabilities. To reduce the probability of liquidity problems, firms with larger fixed assets need a longer maturity structure.

The variable profits over total assets is statistically significant in most **OLS,** _within,_ and IV regressions in East Asia and Latin America. More profits are associated with lower short-term and long-term debt. Also, higher profits are related with shorter debt maturity structure-suggesting that long-term debt shrinks more than short-term debt. Additionally, higher profits are positively correlated with the level of internal financing (retained earnings over total debt). These findings agree with the existing literature. The results are consistent with the pecking order hypothesis (Myers, 1984 and Myers and Majluf, 1984). Higher profits shifts the financing choices towards internal financing, so that retained earnings finance investment projects, avoiding the market under valuation of firms' securities.

The variable for tradable producers is statistically significant for East Asian economies in **-** some specifications. Tradable producers have lower debt-equity ratios, particularly Iong-term debt. The maturity structure of tradable producers is biased towards the short-term, relative to non-tradable producers. Internal financing is more important for East Asian tradable producers. These are new resulis; they have not been tested before in the literature. Following Diamond (1991a), one can argue that tradable producers are less vulnerable to domestic financial crises." Therefore, they should be less concerned about liquidity risk and they could possibly receive better future rating. Therefore, tradable producers might prefer to have a shorter maturity structure.

**17**
# **III.b Access to International Markets**

The **OLS,** _within,_ and IV estimations show that access to international bond markets is positive and statistically significant in the models for long-term debt. Also, access to international bond markets is associated with longer debt maturity. Both effects are relevant in Latin America and East Asia. In the case of Latin America, issues of international bonds are positively correlated with leverage. This implies that domestic firms are not just replacing short-term financing in local markets for long-term financing abroad. In East Asia, access to international bonds is negatively correlated with internal financing in the _within_ estimations.

Capital markets in developed countries typically have better financial institutions and liquidity than markets in emerging economies. These characteristics simplify activities in the financial intermediation sector. Remarkably, the maturity mismatch that distinguishes these activities can be better managed, promoting deep markets for long-term financing. The evidence suggests that firms from emerging economies benefit from accessing international markets, where they can obtain long-term financing.

Access to international equity markets is associated with higher leverage. This effect is significant in the **OLS** and IV regressions, but not in the _within_ estimations. In Latin America, access to international equity markets is positively correlated both with short-term and long-term debt. In East Asia, this effect only holds for short-term debt.

> **"** This effect is particularly relevant if one takes into account the extent of liability dollarization in emerging economies. See Calvo and Reinhart **(1999).**

> **_15_** Note that access to international equity markets seem to have stronger effects in Latin American than in East Asia. This difference might be due to the fact that Latin American companies started participating

> earlier and to a much larger extent in international equity markets.

**18**
Increases in the amount of equity traded abroad are not related to intra-firm financing choices. The above results imply that access to international equity markets may simplify firms' access to debt markets. The data show that this is an inter-firm result, suggesting that access to equity markets affects financial structure **by** differentiating firms. In other words, access to markets may **be** signaling credit worthiness.

# **IH.c Financial Liberalization and Crises**

The different estimations show that financial liberalization has statistically significant effects on financing choices of firms from emerging economies. First, leverage ratios decrease for all types of debt. This result holds for the regressions that jointly consider East Asian and Latin American firms, and for those that only consider East Asian firms. Second, as economies become more open, the maturity structure shifts to the short term in both East Asia and Latin America. Finally, financial liberalization is positively correlated with level of internal financing only in East Asia.

**The** fall in debt-equity ratios after financial liberalization does not support the belief that these policies lead to overborrowing-if one focuses on debt relative to equity. Borrowing may increase after financial liberalization, but it does not seem to increase relative to equity. Consider that these estimates only cover non-financial firms and financial liberalization took place in the early 1990s. Therefore, the arguments made in the papers related to recent crises do not necessarily contradict our findings. Debt-equity ratios might have increased mainly in the middle and late 1990s and mostly in financial firms.

**19**
The development and growing importance of equity markets during the 1990s might help explain why we find declining debt-equity ratios. Financial liberalization in the 1990s differs from liberalization programs of the previous decade. Portfolio flows now play a crucial role in international capital markets. Moreover, globalization may reduce the cost of equity capital, which in turn might help in the development of equity markets. Stulz **(1999)** explains how globalization reduces the cost of equity capital. First, he argues that globalization can reduce the discount rate that investors apply to cash flows generated **by** equity investment. Stulz also explains that globalization could improve corporate governance, making less expensive for firms to raise funds in capital markets.

The existing literature on corporate finance provides arguments that explain a shortening debt maturity structure after financial liberalization. Myers **(1977)** shows that when the value of firms depends on growth opportunities, shareholders might decide to under invest to avoid passing the proceeds of future projects to bondholders. Myers claims that, alternatively, a shorter debt maturity structure can avoid sub-optimal investment decisions. Firms from emerging economies typically face new growth opportunities when financial liberalization takes place." To take advantage of these opportunities, firms might decide to undertake short-term debt.

Existing arguments on the international finance side might support an alternative explanation for the shortening maturity in East Asia after financial liberalization. On the real side, Krugman (1994), among others, argue that these economies' growth processes have been mainly conducted through inefficiently allocated capital accumulation. On the financial side, East Asian economies have been characterized **by** inadequate prudential 20
regulation of the financial sector and **by** strong incentives to borrow abroad, due to high domestic funding costs.<sup>1</sup> The prospect of diminishing returns, after a long process of growth without productivity gains, may induce international lenders to be cautious in taking long-run positions." This may increase long-term risk premiums and create incentives for firms to bias their maturity structure to the short-term.

Even thought an emerging economy might move to a shorter maturity structure, the financial liberal[ization variable can only capture the effects of financial integration at the aggregate level. This variable cannot identify the effect of the actual participation in developed financial markets on the firms' financing choices. To study this effect, we showed in the previous section how financial structure change when firms issue bonds or trade equity in international markets. Firms with access to international capital markets might behave differently than firms constrained to finding investment through domestic markets.

The financial liberalization variable and the variable capturing access to international capital markets suggest that financial integration does not seem to have a uniform effect across firms. On the one hand, access to international bond markets during the 1990s is associated with an extended maturity structure of firms that participate in these markets. C the other hand, the maturity structure shrinks for the whole economy. These two facts suggest that firms constrained to local financial markets increase short-term

> **"1** In fact, large current account deficits in emerging economies are usually interpreted as evidence of new investments **in** projects with high-expected returns.

> **17** See, for example, World Bank **(1998).**

> **18** Claessens et al. **(1998)** argue that relatively low profitability in some of the Asian economies forced

> firms to look for external financing during the decade previous to the financial crisis, with short-term debt playing an important role.

21
borrowing more than firms with access to international financial markets increase longterm borrowing." Financial crises have a significant effect on leverage ratios. Long-term and shortterm debt-equity ratios increase in all crises.<sup>20</sup> The effects seem to be stronger during the Asian crisis (in **1997** and **1998)** than during the Mexican crisis. The latter was localized in the first quarter of **1995** and mainly involved Mexico and Argentina. Whereas, the Asian Crisis had important effects on East Asian firms, with strong spillover effects on other emerging economies. High interest rates during crisis times appear to be the main factor behind higher leverage ratios. The evidence also indicates that the maturity structure shifts to the long term. Probably, debt contracts with floating-rates increase the level of long-term debt during crises, while firms find it difficult to roll over short-term debt.

# **HI.d** Financial Liberalization and Domestic Financial Development

In the previous section we studied the effect of financial liberalization on financial choices. However, one can expect that countries with varying degrees of domestic financial development will be affected **by** financial liberalization differently. When emerging economies integrate with world capital markets, some firms can gain access to more developed markets. Firms from countries with deep domestic financial systems should see few changes after opening to world markets. Whereas, companies from countries with repressed domestic financial markets should face new financing opportunities when financial liberalization takes place. However, if all emerging markets

> **19** The behavior of domestic financial intermediation might play an important role on the maturity

> structure of debt in emerging economies, altering the effects of financial liberalization on leverage ratios.

22
are much less developed than international financial markets, the degree of domestic financial development should not have a significant effect.

> We test whether domestic financial development matters **by** using the indicator constructed **by** Demirgfig-Kunt and Levine **(1999).** As mentioned before, this indicator is the sum **of** the stock market capitalization and liabilities of the banking sector, as a percentage of **GDP.** We use the interaction of this indicator with the index of financial liberalization. This interaction measures the effect of financial liberalization on firms' financing choices, according to the degree of domestic financial development. If the development of the domestic market is significant, we expect this variable to have the opposite sign of the financial liberalization variable. For example, if financial liberalization reduces debt-equity ratios, we expect the coefficient of the interacted variables to have a positive sign.

The results are reported in the appendix tables. As expected, they show that more developed domestic financial systems are less affected **by** liberalization processes. In general, the interaction variable has the opposite sign of the liberalization variable. In other words, the negative correlation between liberalization and leverage is stronger in less developed domestic financial systems. Also, the maturity structure moves to the short term after financial liberalization to a lesser degree in countries with deeper financial markets.

> **20** Note that this effect is not affected **by** the decline in stock market prices. As mentioned before, we work with the book value of equity.

**23**
# **IV. Bank-Based vs. Market-Based Systems**

In this section, we estimate two sets of regressions. One set contains the countries characterized as bank-based economies (Argentina and Indonesia). The other set includes the countries classified as market-based economies (Brazil, Malaysia, Mexico, South Korea, and Thailand). The goal of these estimations is to compare the effect of financial liberalization and access to international capital markets on financial structure of firms from bank-based and market-based systems. **All** these results are tabulated in Tables **VI.**

**If** the differences between market-based and bank-based systems are significant, one will expect differentiated effects of the integration with international financial markets. In particular, we should see differences in the variables that capture access to international financial markets. These variables measure the participation of local firms in global bond and equity markets. Consequently, these variables necessarily imply a shift towards market oriented systems. The regressions help us distinguish whether this effect is different across systems.

**If** the difference between market-based and bank-based systems is small, relative to the difference between emerging and developed economies, access to international financial markets should have similar effects on firms from both systems. Given that we are working with few countries, it is hard to disentangle any country specific effects from system specific effects. Therefore, the results on bank-based and market-based systems should be subject to further research to obtain general conclusions. The evidence presented here should **be** considered as a first approach to the problem.

> The variable financial liberalization captures, among other things, the deregulation of the domestic financial sector. During this process, economies move to financial

24
intermediation based on market incentives. However, financial liberalization does not necessarily denote a shift towards market-based systems **(as** described in Demirgiig-Kunt and Levine, **1999).** Financial liberalization can lead to the development of a competitive banking sector. As a consequence, it is less straightforward to expect a specific difference in this variable in the regressions for each system. The effect of this variable will depend on the developments in the aftermath of financial liberalizations.

The results show that firm specific characteristics affect financial structure both in bank-based and market-based systems. The maturity structure of debt extends as firms" increase in size, both in bank-based and market-based systems. In market-based systems, both short-term debt and long-term debt vary with size. In bank-based systems, just longterm debt and debt-equity ratios increase with size.

Assuming that larger firms are also the more established ones, one could argue that, in market-based systems, these firms issue less risky securities. As a consequence, firms are able to shift their maturity structure to the long-term. Larger firms increase long-term debt and decrease short-term debt. Moreover, larger firms have a lower level of internal financing. In bank-based systems, one could argue that stage financing has a role. As firms grow and get established in the market, banks do not need to spend resources to control them periodically. As a consequence, long-term debt and debt-equity ratios are positively associated with firms' size.

Regarding fte tangibility of assets, there is no significant difference between-bankbased and market-based systems on the leverage ratios. In market-based systems, firms with more tangilble assets have a longer debt maturity structure and higher level of internal financing. The effects of profits over total assets on financial structure yield no differences

**_25_**
between bank-based and market-based systems. Finally, regarding firms' characteristics, the results suggest that tradable producers bias their maturity structure to the short-term. There are no differences between bank-based and market-based economies, except that tradable producers have a higher level of internal financing in market-based systems.

Access to bond markets increases long-term debt and extends the maturity structure of debt, both in market-based and bank-based financial systems. Results do not only capture differences between firms, but also within a given firm. Companies with access to bond markets seem to react in the same way in bank-based and market-based financial systems. In bank-based systems, the **OLS** and IV estimates show that firms that access international bond markets also increase their debt-equity ratios, suggesting that they are not just replacing bank debt with bonds. The results suggest that bank-based systems seem to be liquidity constrained, given that firms increase their leverage as they access to international bond markets. Also, _within_ regressions show that, in market economies, firms with access reduce internal financing.

The financial liberalization variable is negatively associated with both short-term and long-term debt in market-based economies. However, the maturity structure moves to the short term and internal financing increases.

Regarding the crisis variables, the Mexican crisis does not have sizable effects on capital structure, except that the maturity structure increases in market-based systems. During the Asian crisis, market-based economies were affected first, in **1997,** with increases in most leverage ratios. During **1998,** both systems were affected. However, bank-based economies were able to increase the maturity structure of debt. Most probably, the increase in interest rates during the crisis is behind higher debt-equity ratios. Short-

**26**
term debt is issued or renegotiated at higher interest rates. Long-term debt increases under floating rates.

# **V.** Summary of **Results and Conclusions**

There is growing literature on the effects of financial liberalization in previously closed economies. There is also a growing literature linking firms' characteristics to financial structure. Following these two literatures, this paper analyzed cross-country microeconomic data on financing choices during the process of integration with global financial markets. To our knowledge, this type of evidence has not been previously examined.

The paper investigated whether financial integration affects the financing choices of non-financial firms in emerging economies from East Asia and Latin America. Using a firm-level panel, _we_ studied the behavior of firms' financing choices when economies become liberalized and when firms access international bond and equity markets. We focused on leverage levels, debt maturity, and the choice between external and internal financing to study financial structure.

The results from this paper can be summarized as follows.

> * _Firm specific characteristics and financing choices:_ Although we

> extended the sample to include the 1990s, our results are consistent with the previous

> literature, which mostly covers the 1980s. In other words, larger firms and firms with more tangible assets extend their debt maturity. Higher profits are associated with more internal financing, less leverage, and shorter debt maturity. We also extended the existing literature **by** analyzing the effects of the production mix on financial structure. The evidence suggests

**27**
that firms producing tradable goods in East Asia have shorter maturity and higher internal financing.

_* Access to international bond markets:_ The data suggest that firms with access to international markets increase their long-term debt and lengthen their debt maturity structure. Also, access to international bond markets is negatively related to internal financing in East Asia, while it is positively correlated with leverage in Latin America.

> _* Access to international equity markets:_ When more equity is traded in international markets, firms increase short-term debt. In Latin America, the shift to global markets is positively associated with long-term debt and a longer maturity structure.

> _* Financial liberalization:_ The evidence shows that financial liberalization is positively correlated with internal financing and negatively related to both short-term and long-term debt-equity ratios, particularly in East Asia. The evidence also suggests that financial liberalization is associated with a shorter debt maturity structure, both in East Asia and Latin America.

> _* Financial crises:_ Leverage ratios tend to increase during crisis times. Given that issues of international bonds decreased and there probably was a reduction of domestic debt issues during crisis years, higher interest rates are likely behind the increase in debt-equity ratios. The evidence also shows cross-regional spillover effects. Leverage increased in East Asia during the Mexican crisis and in Latin America during the Asian crisis. Finally, the maturity structure extends during crisis times, what may be due to

> floating rates in long-term debt and non-renewal of short-term debt contracts.

**28**
> _* Financial integration and domestic financial development:_ The evidence suggests that firms in emerging economies with more developed domestic financial systems are less affected **by** financial liberalization.

_* Bank-based vs. market-based systems:_ Assuming that the countries in our sample represent bank-based and market-based economies accurately, the results suggest that integration with international capital markets affect all emerging economies similarly. In other words, the difference between emerging and developed markets seems to be more important than the difference between bank-based and market-based emerging economies. Access to international bond markets increases maturity in both types of systems. The data also show that access to bond markets increases leverage in bank-based economies, suggesting that their domestic financial sector might be liquidity constrained.

_* Case study of Argentina:_ Consistent with the general evidence, larger Argentine firms extend their debt maturity. In contrast to other emerging economies, larger firms also increase short-term debt. As in other countries, more profitable firms reduce leverage and increase internal financing, while more tangible assets are associated with less leverage. Access to international bond markets extends debt maturity, while access to international equity markets has the opposite effect. Consistent with the East Asian experience, financial liberalization reduces debt-equity ratios and shortens debt maturity. In contrast to other emerging economies, the Mexican crisis reduces the debt maturity structure. Finally, _we_ found a strong relationship between debt currency denomination and maturity. To extend the maturity structure, firms contract foreign currency debt.

**29**
In sum, our main results show that globalization of financial markets are related to firms' financing choices. Globalization seems to have uneven effects. On the one hand, domestic firms that actually participate in international markets obtain better financing opportunities. For example, these firms are able to extend their liability maturity structure. On the other hand, debt maturity tends to shorten when countries undertake financial liberalization. This implies that firms that do not participate in international markets are likely increasing their short-term financing liabilities.

The evidence from this paper suggests some policy lessons related to the development and regulation of domestic financial markets. First, the results suggest that the domestic financial sector plays an important role. This sector needs to provide adequate financing to firms unable to obtain foreign funding. As a consequence, policies that help to consolidate a mature domestic financial system indirectly favor the development of local firms, through the provision of financing alternatives. This implication is confirmed **by** the fact that countries with deeper domestic financial markets are less affected **by** financial liberalization policies.

**A** second policy lesson is related to the prudential regulation of the domestic financial sector. Although previous studies suggest that financial liberalization may drive the economy to overborrowing, the results show that debt-equity ratios do not tend to increase after financial liberalization. However, the data also show that there is a shift of the maturity structure to the short term. Some authors argue that the maturity structure of debt played a crucial role in recent crises. Therefore, it may be important that liberalization policies be accompanied **by** strong prudential regulation in the financial sector, to prevent a mismatch between the maturity of assets and liabilities.

**30**
This paper jpresented a first step to understanding the effects of financial integration on financing choices. However, this paper opened new questions for future research. First, we showed that firms with access to international financial markets expand their financing opportunities. **It** would be worthwhile to explicitly test what happens to firms confined to domestic financial markets, when large firms migrate to global markets. Are there "crowding in" effects? Do firms that obtain external financing expand the financing opportunities for firms that rely on domestic markets? Second, it would be interesting to investigate how the financing choices of the public sector affect the financing opportunities of firms with and without access to international capital markets. Third, it seems important to understand what determines access to international financial markets. Fourth, it would be worth studying the effects of globalization on firms' growth, investment decisions, and value. These interesting questions were beyond the scope of the present paper, but this type of data set would allow us to pursue further research in this direction.

**31**
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Bhide, **A., 1993.** "The Hidden Costs of Stock Market Liquidity." _Journal of Financial Economics_ 34, **31-51.** Calvo, **G.** and **C.** Reinhart, **1999.** "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," University of Maryland.

Caprio, **G.** Jr. and **A.** Demirgiig-Kunt, **1997.** "The Role of Long-Term Finance: Theory and Evidence." Manuscript. The World Bank.

Claessens, **S., S.** Djankov, and L. Lang, **1998.** "Corporate Growth, Financing, and Risks in the Decade before East Asia's Financial Crisis." Policy research working paper **2017.** The World Bank Demirgilg-Kunt, **A.,** and R. Levine, **1997.** "Financial Structure and Economic Development." Manuscript. The World Bank.

Demirgii-Kunt, **A.,** and R. Levine, **1999.** "Bank-Based and Market-Based Financial Systems: Cross-Country Comparisons." Manuscript. The World Bank.

Demirgiig-Kunt, **A.,** and V. Maksimovic, 1994. "Capital Structures in Developing Countries: Evidence from Ten Countries." Policy Research Working Paper **1320.** The World Bank Demirgiiq-Kunt, **A.,** and V. Maksimovic, **1995.** "Stock Market Development and Firm Financing Choices." Policy Research Working Paper 1461. The World Bank.

Demirgi9-Kunt, **A.,** and V. Maksimovic, 1998a. "Institutions, Financial Markets, and Firm Debt Maturity." Manuscript. The World Bank.

Demirgijg-Kunt, **A.,** and V. Maksimovic, **1998b.** "Law, Finance, and Firm Growth."' _Journal ofFinance,_ **_53,_ 2107-37.** Diamond, D.W., 1991a. "Debt Maturity Structure and Liquidity Risk." _The Quarterly Journal ofEconomics,_ **_709-737._** Diamond, D.W., **1991b.** "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt." _Journal ofPolitical Economy_ 99(4), **689-712.**

> Gallego, F. and **N.** Loayza, 2000, "Financial Structure in Chile," Manuscript. Central Bank of Chile.

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Heymann **D.,** and **A.** Leijonhufvud, **_1995._** High Inflation _Oxford University Press._ Jaramillo, F., and F. Schiantarelli, **1996.** "Access to Long-Term Debt and Effects on Firms' Performance: Lessons from Ecuador." Manuscript. The World Bank.

Jensen, M. and W. Meckling, **1977.** "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure." _Journal of Financiai Economics._ Kaminsky, **G.,** and **C.** Reinhart, **1999.** "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems." _American Economic Review._ Kaminsky, **G.,** and **S.** Schmukler, **1999.** "On Financial Booms and Crashes: Regional Patterns, Time Patterns, and Financial Liberalization." Manuscript. The World Bank.

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Krugman, P., **1999.** "Balance Sheets, the Transfer Problem, and Financial Crises." Manuscript. Massachusetts Institute of Technology.

McKinnon, R., and H. Pill, **1997.** "Credible Economic Liberalizations and Overborrowing" _American Economic Review._ Modigliani, F. and M. Miller, **_1958._** "The Cost of Capital, Corporation Finance, and the Theory of Investment." _American Economic Review._ Morris, **J., 1976.** "On Corporate Debt Maturity StrategiLes." _Journal ofFinance._ Myers, **S., 1977,** "Determinants of Corporate Borrowing." _Journal of Financial Economics._ Myers, **S.,** 1984. "The Capital Structure Puzzle." _Journial ofFinance._ Myers, **S.** and **N.** Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have Information that Investors Do Not Have." _Journal ofFinance._ Neumeyer, P., **1998.** "Inflation-Stabilization Risk in Economies with Incomplete Markets." _Journal of Economic Dynamics and Control._ Samuel, **C., 1996.** "The Stock Market as a Source of Finance: **A** Comparison of **U.S.** and Indian Firms." Policy Research Working Paper **_1592._** The World Bank.

Schiantarelli, F., and V. Srivastava, **1996.** "Debt Maturity and Firm Performance: **A** Panel Study of Indian Public Limited Companies." Manuscript.<sup>TheWorld Bank.</sup>

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Stulz, R. M., **1998.** "Financial Structure, Corporate Finance, and Economic Growth." Manuscript. The Ohio State University.

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# **Appendix 1: The Case of Argentina**

This appendix studies in detail the case of Argentina. This case is worth studying due to a number of reasons. First, Argentina underwent a sharp process of financial liberalization during the early 1990s. Second, Argentina is under a currency board system since **1991,** with assets and liabilities legally **held** both in peso and **U.S.** dollars. Dollar liabilities irepresent a very large proportion of total liabilities, implying a high degree of dollarization. Third, some Argentine firms became rapidly integrated with world financial markets. Fourth, Argentina suffered the spillover effects of the Mexican, Asian, and Russian crises. Fifth, the Argentine financial system consolidated during the mid-1990s with a strong participation of foreign banks. Sixth, microeconomic data on Argentine corporations was not studied before in the literature. Seventh, unlike the other countries in our sample, there is information on debt currency denomination of Argentine firms. To study Argentina, we follow the same methodology used for the rest of the paper. The results for Argentina are presented in the appendix tables. They can be summarized as **follows.**

# **_Firm Specific Characteristics and Financial structure:_**

The evidence suggests that larger firms increase their leverage. This contrasts with the East Asian experience, which suggests that larger firms increase long-term debt and reduce short-term financing. The data also show that within a given firm, changes in size are positively correlated with increases in short-term financing. Both in East Asia and Latin America, the data suggest that increases in firms' assets reduce short-term debt. Finally, larger firms extend the maturity structure of their liabilities. The experience of

**35**
Argentina is consistent with emerging economies in general and with the previous literature. Larger firms have better access to credit markets, particularly to long-term debt.

Firms with a large proportion of net fixed assets reduce leverage **by** decreasing both short-term and long-term debt. This effect is not significant within firms. In this regard, the behavior of firms in Argentina is more similar to the one of East Asian firms. In other Latin American countries, firms with a higher proportion of fixed assets reduce shortterm debt. They do not reduce long-term financing. The effects on maturity structure is not clear, so it is hard to argue if firms in Argentina match the maturity of assets and liabilities Higher profits reduce leverage in Argentina. The relationship holds both within firms and between firms. More profitable firms increase internal financing. These results are compatible with the experience in other emerging economies.

The results of currency debt denomination are very interesting." The most important result is that a higher proportion of peso denominated debt is associated with a shorter debt maturity structure. This result is statistically significant in the **OLS,** _within_ and IV regressions. The findings are consistent with the fact that the Argentine economy has undergone through a long and extreme inflationary process during the 1980s, which lead to a phenomenon dubbed "cortoplacismo." This is associated to situations in which markets for long-term, domestic-currency contracts tend to become thin and, in some cases, even

> 21 Note that since data for debt currency denomination restricts the sample significantly, we only included this variable in the regression that we expected a meaningful effect.

**36**
disappear." The data suggest that allowing agents to legally hold assets and liabilities in **U.S.** dollars has lengthened the maturity structure of debt in Argentine firms.<sup>23</sup>

# **_Access to International Markets:_**

There is some evidence that access to international bond markets increases longterm financing, extending the maturity structure of debt. This is consistent with the evidence for other emerging economies.

> The financial sector consolidation and financial liberalization in Argentina took place through a strong participation of foreign banks. The latter replaced, in many cases, domestic financial intermediaries. These new intemational banks have probably not provided credit under conditions similar to the ones offered **by** international capital markets. Therefore, firms still benefit from accessing foreign bond markets. The data suggest that letting international financial agents to cperate in domestic markets does not seem to **be** equivalent to letting firms access international capital markets directly.

# **_Financial Liberalization and Crises:_**

As in East Asia, financial liberalization seems to reduce leverage in general. In the Argentine case, there is some evidence that both short-term and long-term debt decrease. The maturity structure shifts towards the short-term in Argentina. This is consistent with the experience of other emerging economies. The Mexican crisis shortens the maturity structure of debt in Argentina, in contrast with the experience of other Latin American countries.

> **22** See, for example, Heymann and Leijonhufvud **_(1995)_** and Neumeyer **(1998).**

> **23** Note that the basic results do not contain the variable on currency debt denomination. **A** reduced number of finns provide data for this variable. Therefore, we only include the currency debt denomination

> as additional results.

**37**
# **Appendix 2: Number of Firms and Periods Available for Each Country**

|**Country**|**Period**|**NumberofFirms**|
|---|---|---|
|Argentina|**1988-1999**|**73**|
|Brazil|**1985-1998**|264|
|Indonesia|**1989-1998**|**_185_**|
|Malaysia|**1983-1998**|**_561_**|
|Mexico|**1981-1998**|202|
|SouthKorea|**1980-1998**|410|
|Thailand|**1980-1999**|**278**|

**38**
# **Appendix 3: Literature Review**

# **_Corporate Finance:_**

There **is** a vast literature in corporate finance that focuses on the financial structure of firms. The seminal article **by** Modigliani and Miller **(1958)** shows that the value of firms is independent to its financial structure. This implies a complete dichotomization of real and financial decisions. The assumptions made **by** Modigliani and .Miller induced a large amount of work to understand the characteristics of firms' financing choices. Three fundamental decisions determine financing choices: (a) internal vs. external financing, **(b)** debt vs. equity financing, and (c) short-term vs. long-term debt (maturity structure of debt).

Most explanations for the capital structure of firms have focused on agency costs of financing.<sup>24</sup> They emphasize the potential conflict of interest between investors holding different types of securities. Within agency costs, we can distinguish two approaches to the problem. One emphasizes managerial issues and the other asymmetric information. Both approaches suggest that certain firm characteristics are important in order to understand financial structure.

The managerial approach concentrates on the conflicting objectives that the separation between ownership and management may create within the firm." This separation may induce discretionary behavior on the part of managers, which is difficult to control by shareholders/owners. Professional managers may want to avoid external financing, which would subject them to the discipline of capital markets. An important firm

> **24** We do not intend to offer here an exhaustive exposition **of** the different theories on financing choices of firms. We just want to provide a general description of the ideas that motivated our work.

> **2s** See, for example, Jensen and Meckling **1977.**

**39**
characteristic related to managerial considerations is a measure of profits, given that it may account for the firm's ability to generate capital internally.

The asymmetric information approach focuses on two different conflicts of interest: (i) between inside and outside investors and (ii) between bondholders and equityholders. Within the first class of conflict, the work **by** Myers and Majluf (1984) shows that equity may be under-priced, when outsiders are uninformed relative to insiders. Myers (1984) refers to this as the 'pecking order' theory of financing. Namely, firms intend first to finance investment internally. Then, they move to low risk debt and, as a last resort, to equity. Here, again, a measure of profit would be a relevant firm characteristic.

The work **by** Diamond (1991a, **1991b)** also focuses on insider/outsider relationships in his study of the determinants of debt maturity. Diamond stresses a trade-off between firms' good ratings (which may bias them towards the short-term) and liquidity risk (creating incentives to contract long-term debt).

Regarding the conflict between bondholders and equityholders, Hart **(1993)** emphasizes that as leverage increases, equityholders have incentives to siphon funds from the firm. They will appropriate all these funds, while the consequent reduction in the value: of the firms will be shared with the bondholders. One key firm characteristic related to this problem is its asset structure. **A** greater proportion of specific capital assets (fixed assets) can potentially reduce bondholders' risk (and encourage debt financing), due to the fact that it allows firms to issue secure debt.

> The asset structure can also affect debt maturity, though for reasons not related to agency problems. Morris **(1976)** suggests that firms intend to match the maturity of assets and liabilities. **A** debt maturity shorter than asset life increases the risk of being illiquid

40
when payments come due. On the other hand, a debt maturity longer than asset life may create problems of finding new assets to support debt service."<sup>6</sup> Finally, another firm characteristic not suggested in the literature on agency cost is size. As argued **by** Demirgfii-Kunt and Maksimovic (1994), firm size may be relevant for financial structure, because access to financial markets may be a functior. **of** size.

The empirical literature on financial structure in developing countries emphasizes the influence of firms' characteristics, institutional factors, and the development of financial markets on the financing choices of firms. Aivazian, Booth, Demirgiiq-Kunt, and Maksimovic **(1999)** use a firm-level database to study whether the capital structure theory is relevant for developing countries with different institutional characteristics.<sup>27</sup> They study capital structure in ten developing countries and fccus on three main issues. First, they study the possibility that corporate leverage decisions differ between developed and developing countries. Second, they analyze the factors that affect cross-sectional variability within each country. Finally, they examine the possibility that capital structure models add insights to just knowing the nationality of the company. They focus on book and market debt ratios.<sup>8</sup> They regress these ratios against: (a) firms characteristics (tax rates, assets tangibility, business risk, size, returns on assets, and market to book ratios), **(b)** dummy variables for the different countries, and (c) aggregate financial indicators for each country (for cross country regressions).

See also Caprio and Demirgib;-Kunt **(1997).**

> There exist some case studies. Jaramillo and Schianl:arelli **(1996)** study the case of Ecuador, Schiantarelli and Srivastava **(1996)** and Samuel **(1996)** cover the case of India, while Gallego and Loayza (2000) analyze the case of Chile.

2 They focus on three different ratios: **(1)** the total book debt ratio, defined as total liabilities divided **by** total liabilities plus net worth, (2) the long book debt ratios, defined as long-term liabilities divided **by** long-term liabilities plus net worth, and **(3)** the long market debt ratio, **by** substituting the average equity market value for net worth.

41
The finding **by** Aivazian, Booth, Demirgijg-Kunt, and Maksimovic can be summarized in three basic points. First, financial structure in developing and developed countries is affected **by** the same factors. The only difference is that firms in developing countries have less long-term debt in relation to their counterparts in developed countries. Second, profitability reduces total debt ratios. Tangibility of assets also reduces total debt, but increases long-term debt ratios. Size also affects debt ratios, though differently across countries. Third, country factors are at least as significant as financial factors to understand financial structure.

Demirgijq-Kunt and Maksimovic (1998a and **1998b)** examine debt maturity in thirty countries during the period **1980-1991.** Their sample includes developed and developing countries. These papers present cross-country studies and focus on the effects of legal and financial institutions on firm's funding decisions. They analyze short-term and long-term debt and the maturity structure of liabilities. Their main findings can be summarized as follows. First, they show that both an active stock market and a well-developed legal system facilitate growth of firms and access to external funding. Second, firms in developed countries have more long-term debt and a greater proportion of their total debt is held as long-term debt. Third, large firms in countries with more effective legal systems have more long-term debt, relative to assets. Their debt is of longer maturity. Fourth, in countries with active stock markets, large firms have more long-term debt and debt of longer maturity. In countries with a large banking sector, there is some evidence that small firms have less short-term debt and their debt is of longer maturity. Fifth, high ratios of fixed assets to total assets are positively related to long-term debt.

42
# **_Financia! Structure:_**

The literature on financial structure discusses the characteristics of bank-based visA-vis market-based economic systems. In bank-based systems, banks provide most of the credit to the economy. In market-based systems, firms raise funds in capital markets (bond and equity markets).

When comparing bank-based and market-based systems, a key issue is related to the trade off between liquidity of financial instruments and control of debtors. **Highly** liquid security markets reduce incentives for traders to control the behavior of managers. Bhide **(1993)** argues that corporate bonds, which usually do not contain provisions for inside monitoring, can be freely traded in liquid markets. This liquidity allows bondholders to 'penalize' bad management. Whereas, unsecured business loans require banks to control the activities and management of borrowers, implying the costly collection of inside information. This process prevents the liquid trading of bank loans. However, one potential advantage of inside monitoring is the development of long-term relationships between borrowers and lenders. This could extend the maturity structure of liabilities in relation to market-based economies.

Stage financing gives a different perspective to the expected maturity structure of debt contracts under bank-based and market-based systems. For example, stage financing might replace long-term loans for a series of short-term contracts in bank-based systems. Stulz **(1998)** points out that banks are prepared to effectively renew and expand loans, as borrowers offer convincing information about the viability of their projects. Moreover, if a borrower pays her debts, there is no reason to spend resources trying to figure out the true value of the borrower's assets. In this way, Stulz suggests that stage financing is often an 43
efficient solution to the intermediation problem. Thus, this sort of financing agreements implies that there is no simple relationship between financial structure and maturity of financial instruments.

# **_International Finance:_**

The literature on international finance provides another perspective to the financial structure of firms. This literature emphasizes the consequences of financial liberalization policies on financing choices. For example, McKinnon and Pill **(1997)** argue that in the transition from economic repression to liberalization many countries engage in excessive foreign borrowing that ultimately proves to **be** unsustainable. This is due to the interaction between private expectations and domestic economic policy. On the one hand, the private sector could miscalculate the eventual payoffs that a credible reform will bring about. On the other, the existence of deposit insurance leads banks to lend aggressively, giving a falsely optimistic signal to non-bank firms and households. McKinnon and Pill argue that the appropriateness of prudential banking regulation in times of structural change might **be** hard to assess, so that the effects of moral hazard problems could be crucial in these economies.

On the empirical side, Kaminsky and Reinhart **(1999)** focus on the links between financial and balance of payments crises. **They** examine these episodes for a number of industrial and developing countries during the 1970's, 1980's, and 1990's. Remarkably, they find that in **18** out of the **_25_** banking crises they analyze, the financial sector had been liberalized at most during the previous five years. Moreover, econometric analysis shows that financial liberalization helps to predict banking crises. As McKinnon and Pill, 44
Kaminsky and Reinhart suggest<sup>that,inmanyinstances,liberalizationpoliciestake place</sup> without an adequate regulatory<sup>andsupervisory framework.</sup> 45
Figure **I:** Access to Bond Markets <!-- Start of picture text --> Debt-Equity Ratios *<br>5-<br>4-<br>3-<br>2<br>85 8687 88 8990 9192 939495 96 9798<br><!-- End of picture text --> <!-- Start of picture text --> Short-Term Debt/Equity *<br>3.0<br>2.5<br>10<br>85 8687 8889 90 919293 9495 9697 98<br><!-- End of picture text --> <!-- Start of picture text --> Short-Term Debt/Equity *<br>0.&<br>0.7.<br>0.6<br>0.<br>0.4<br>0.111<br>97 98 85 86 87 88 89 90 91 92 93 94 95 96 97 98<br>Firms that Issued Bonds in Foreign Markets<br>Firms that Did Not Issue Bonds in Foreign Markets<br><!-- End of picture text --> <!-- Start of picture text --> Long-Term Debt/Equity *<br>2.5<br>2.0-<br>1.5<br>1.0.<br>0.5<br>0.0 L .wl<br>85 86 87 88 89 90 91 92 93 94 95 96 97 98<br><!-- End of picture text --> Source: **IFC** Corporate Finance Database andWordScope

***** Ratios are averages across firms
Figure **II:** Access to International<sup>Equity Markets</sup> <!-- Start of picture text --> Debt-Equity Ratios*<br><!-- End of picture text --> <!-- Start of picture text --> 3.5<br>3.O<br>2.5<br>2.OL<br>1993 1994 1995 1996 1997 1998<br><!-- End of picture text --> <!-- Start of picture text --> Short-Term Debt/Equity*<br>2.4<br>2.0<br>1.6<br>1.2<br>0.4<br>1993 1994 1995 1996 1997 1998<br><!-- End of picture text --> <!-- Start of picture text --> Long-Term Debt/Equity*<br><!-- End of picture text --> <!-- Start of picture text -->
1.6-<br>1.4-<br>1.2-<br>1.0.<br>0.8-<br>0.6-  ILEE.<br>0.4AL  MU-<br>93  94  95  96  97  98<br><!-- End of picture text -->

<!-- Start of picture text --> Short-Term Debt/Total Debt*<br>0.75<br>0.70<br>0.65<br>0.6a<br>0.5&<br>0.50<br>0.4a<br>1993 1994 1995 1996 1997 1998<br><!-- End of picture text --> Firms that Issued Equity in Foreign Maikets Firms that Did Not Issue Equity in Foreign Markets Source: **IFC** Corporate Finance Database and WorldScope ***** Ratios are averages across firms
Figure **III:** Bank-Based vs. Market-Based Financial Systems <!-- Start of picture text --> Debt-Equity Ratios*<br>3.5.<br>3.0-<br>2.5.<br>2.0-<br>1.0<br>0.5<br>88 89 90 91 92 93 94 95 96 97 98<br><!-- End of picture text --> <!-- Start of picture text --> Short-Term Debt/Equity*<br>2.5<br>2.0.<br>1.5.<br>1.0.<br>0.5<br>0.0<br>88 89 90 91 92 93 94 95 96 97 98<br><!-- End of picture text -->

# Long-Term Debt/Equity*

<!-- Start of picture text -->
1.2.<br>1.0.<br>0.8.<br>0.60<br>88  89  90  91  92  93  94  95  96  97  98<br><!-- End of picture text -->

<!-- Start of picture text --> Short-Term Debt/Total Debt*<br><!-- End of picture text --> <!-- Start of picture text --> 0.74-<br>0.72<br>0.70.<br>0.68<br>0.66<br>0.6Z<br>88 89 90 91 92 93 94 95 96 97 98<br><!-- End of picture text --> Firms in Bank-Based System Firns in Market-Based System Source: **IFC** Corporate Financial Database and WorldScope ***** Ratios are averages across firms
Table **1:** Panel Estirmates **for Debt-Equity Ratios** **_Dependent Variable: Total DebtiEquity_**

|independent<br>Vibl|PoolL<br>OS|atinAmerica<br>Wihi|andEastAsia<br>**IV**|PoolL<br>OLS|atinAmerica<br>Wihi||PoolE<br>|astAsia<br>||
|---|---|---|---|---|---|---|---|---|---|
|araes:||tn|||tn|**IV**|**OLS**|Within|**IV**|
|**Nh**<br>a<br>Ct<br>rxid<br>ssets|0045|**-0.051**|**0.001**|**0.035**|**-0.039**|**-0.077**|**0.077***|**-0.077**|**0.072**|
|**g**<br> <br> <br> <br>|.<br>**(1.026)**|<br>**(-0.955)**|<br>(0.022)|**(0.725)**|**'-0.893)**|(-0.964)|**(1.981)**|(-1.024)|**(1.101)**|
|Net FixedAssets/Total|**-1.1001"**|**-0.010**|**-1.717*"**|-0.749-*|**-0.635**|**-0.753"**|-1.475"|**-0.397**|**-1.999"***|
|<br>Assets|**(-4.755)**|**(-0.033)**|**(-6.553)**|(-3.444)|**-1.618)**|(-2.241)|**(-9.289)**|**(-1.379)**|**(-7.437)**|
|Profits/TotalAssets|-8.174"<br>|**-7.593"**<br>|**-16.162"**<br>|**-2.702"**<br>|- **.955-**<br>|**-7.921*'**<br>|**-9.069"**<br>|**-6.847"***<br>|**-19.802"***<br>|
||**(-3.615)**|(-2.648)|(-4.843)|**(-8.387)**|'-5.461)|(-5.522)|(-7.134)|(-3.814)|**(-3.986)**|
|Tradable Producers|**-0.1137**||**0.132**|-0.182||**-0.277**|-0.473"*||**-0.113**|
||**(-0.660)**||(0.405)|**(-1.516)**||**(-1.532)**|**(-3.899)**||(-0.473)|
|Access:<br>Access toInt'IBond|0.384"|**0.063**|**1.396"**|**0.197"**|**0.089**|**1.056"**|**0.125**|**0.136**|-0.554|
|Markets|**(2.512)**|(0.444)|**(2.350)**|**(1.992)**|**(1.580)**|(3.524)|**(0.798)**|(1.064)|**(-1.357)**|
|Access to_Intl_Equity|**0.000**|**0.000**|**0.000**|**0.719"**|0.143|**0.875**|**0.000**|0.000|**0.000***|
|<br>Markets|(1.424)|**(1.018)**|(1.664)|**(3.082)**|**(0.827)**|**(1.160)**|(1.437)|**(0.969)**|**(1.763)**|
|FinancialLiberalizationan<br>FinancialLiberalization|d Crises:<br>-0.884"|-0.499*|**-0.627**|-0.349|**0.295**|-0.249|-0.847"|**-0.752"**|-0.444|
||**(-2.263)**|**(-1.961)**|(-1.489)|**(-0.972)**|(0.820)|(-0.438)|**(-3.797)**|**(-3.090)**|(-1.466)|
|Mexican Crisis**- 1995**|**-0.238**|**-0.071**|-0.497|**0.088**|**0.127"**|**0.133**|**0.089**|**0.119"**|**0.016**|
||(-0.981)|**(-0.558)**|**(-1.097)**|**(1.305)**|**(2.166)**|(1.245)|(1.205)|**(2.066)**|(0.122)|
|AsianCrisis**- 1997**|**1.193"**|**1.176"**|**0.880**|**0.300***|**0.261"**|**0.351'**|_0.744-_|**0.901"**|**_0.676"*_**|
||**(2.989)**|**(2.033)**|**(1.585)**|**(1.881)**|(1.994)|**(1.928)**|(4.152)|**(5.138)**|**(3.190)**|
|AsianCrisis**-1998**|**1133"**|**1293"**|**0.728**|**0.299"**|).234"|0.466-|**0.697**|**0.815***|**0.096**|
||**.**<br>(2.480)|**.**<br>**(3.281)**|<br>(1.470)|<br>**(2.426)**|<br>(2.614)|<br>(2.642)|<br>(1.544)|**(1.870)**|**(0.368)**|
|CountryEffects:||||||||||
|<br>Ati|**-1627"'**||**-2118"***|**-0080**||**-0837**||||
|rgenna|**.**<br>(-3.074)||**.**<br>**(-2.990)**|**.**<br>(-0.194)||**.**<br>**(-1.265)**||||
|Brazil|**-1.670"***||_-2.209"_|**-0.183**||**-1.011"**||||
||(-2.993)||**(-2.839)**|**(-0.678)**||**(-2.239)**||||
|Indonesia|-0.648"||-0.410||||**-0.179**||**0.233**|
||(-2.045)||**(-0.636)**||||(-1.234)||**(0.729)**|
|South Korea|**0.609**||**0.070**||||**0.981"***||**0.683"**|
||_(1.414)_||**(0.098)**||||(4.118)||**(2.230)**|
|Malaysia|**-1.280"**||-1.643"*||||**-0.738-**||**.0.539"**|
||(-2.892)||**(-2.602)**||||**(-3.912)**||(-2.012)|
|Mexico|-1455"||-1631"|||||||
||.<br>**(-3.509)**||.<br>**(-2.203)**|||||||
|**C**|4.174"||**5.088-**|**1.865"**||**3.397"**|4.153"||**3.868"**|
||**(10.877)**||**(7.761)**|**(7.118)**||**(6.655)**|**(7.957)**||**(5.670)**|
|Adjusted R-Squared|0.040|**0.157**|**0.030**|**0.072**|0.478|**0.051**|**0.251**|0.497|0.201|
|<br>FixedEffects<br>||**_2.065"'_**<br>|||6.824-<br>|||4.823"*<br>"||
|Chi-Hausman<br>NumberofFirms<br>|**799**<br>|**0.095**<br>**799**<br>|**799**<br>|**238**<br>|**1.291**<br>**238**<br>|**238**<br>|**527**<br>|14.661<br>**527**<br>|**527**<br>|
|NumberofObservations<br>**Robust**<br>standarderrrsWhr|**6137**<br>ectonf<br>terosk|**6137**<br>edasticiy.Thaila|4442<br>ndisthebasecountr|**1785**<br>y.T-staliscsareIn|**1785**<br>aresT.|**1263**|4074|4074|**3003**|
|***""'**indicate**1051**ercent le|<br>elofsinificance|<br>esectivel||||||||
|**,.** **,.,**p<br>Instrumenial<br>variableestmation(<br>toIntlEquity Markets, and anind|g,<br>V):Instrumentsar<br>icator**of**eachcount|py.<br>elaggedexplana<br>ry'saccess toin|toryvariablesotFirm<br>ternational<br>**bond**mar|sCharacteristics(ex<br>kets.|cep.thevariable|TradableProducers|),laggedvaluesofth|evariable Access||
Table **II:** Panel Estimates for Short<sup>Term Debt</sup> _Dependent Variable: Short-Term DebtlEquity_

|Independent<br>|PoolL<br>|atinAmerica<br>|andEastAsia<br>|PoolL<br>|atin America<br>Wihi|<br>**IV**|Pool E<br>OLS|astAsia<br>Withi|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|Variables:|**OLS**|Within|**IV**|**OLS**|tn|||n||
|Firms'Characteristics:||||||||||
|<br>LogofNetFixedAssets|-0.064*<br>**(-1.695)**|**-0.066**<br>(-1.437)|-0.121"<br>(-2.254)|_-0.012_<br>**(-0.860)**|**-0.029"**<br>**(-2.196)**|**-0.092-'**<br>**(-3.679)**|**-0.065"**<br>**(-2.267)**|**-0.096***<br>**(-1.703)**|-0.084<br>**-1.528)**|
|NetFixedAssets/Total|**-0.951"***|0.034|**-1.363****|**-0.744"'**|-0.408*|**-0.768"**|**-1.235"**|.0.324|-1.462*-|
|<br>Assets|<br>(-4.682)|**(0.133)**|**(-6.611)**|(-4.362)|**(-1.807)**|**(-5.571)**|**(-10.975)**|**(-1.600)**|**(-7.127)**|
|Profits/TotalAssets|-6.427"*|**-6.187"**|**-12.697"**|**-1.397"**|**-0.967"***|-4.150*|-6.142-|**-4.778"**|-14.322"*|
||**(-3.016)**|**(-2.279)**|(-4.024)|**(-7.517)**|(-5.034)|**(-5.650)**|**(-6.801)**|**(-3.237)**|**(-3.269)**|
|TradableProducers|**0.106**||**0.386**|**-0.107**||**.0.090**|**-0.176"**<br>||**0.132**<br>|
||(0.460)||**(1.282)**|(.1.419)||**(.0.977)**|**(-1.975)**||(0.674)|
|Access:<br>AccesstoInt'lBond|**0.061**|**-0.137**|**0.808**|0.043|**-0.053**|**0.611'**|**-0.131**|**-0.092**<br>|-0.740"<br>|
|Markets|**(0.617)**|**(-1.133)**|(1.471)|**(0.850)**|(-1.410)|(3.248)|**(-1.391)**|**(-1.111)**|(-2.422)|
|AccesstointlEquiity|**0.000***|0.000|**0.000**<br>|**0.287***<br>|0.049<br>|**_0.497_**<br>|**0.000***<br>|**0.000**<br>|**0.000"**<br>|
|Markets|(1.724)|(1.134)|**(1.567)**|(1.704)|(0.543)|**(1.029)**|(1.942)|**(1.061)**|**(2.038)**|
|FinancialLiberalizationa<br>Financial Liberalization|ndCrises:<br>**-0.156**|**-0.361'**|**-0.136**|-0.020|**0.172***|0.040|-0.443"|**-0.530"**|-0.140|
||**(-0.626)**|(-1.964)|**(-0.382)**|**(-0.236)**|**(1.896)**|**(0.291)**|**(-2.792)**|**(-2.858)**|**(-0.613)**|
|Mexican Crisis**- 1995**|-0.248|**-0.106**|-0.448|**0.067**|**0.068***|**0.135"**|0.045|**0.056**|**-0.017**|
||**(-1.083)**|**(-0.902)**|(-1.043)|**(1.366)**|(1.734)|(2.048)|**(0.818)**|(1.522)|**(-0.171)**|
|AsianCrisis**- 1997**|**0.729"**|**0.656**|0.468|0.122|0.127"|**0.136**|**0.388"**|0.455"|**0.325"**|
||(2.012)|**(1.216)**|**(0.903)**|**(1.572)**|(2.418)|**(1.591)**|**(3.778)**|**(4.897)**|(2.466)|
|Asian Crisis**-1998**|**0.659***|**0.856"**|0.458|**0.132**|**0.088***|0.241"|**0.133**|0.194|**-0.085**|
||**(1.733)**|**(2.673)**|**(0.972)**|(1.498)|**(1.653)**|**(2.090)**|(0.841)|**(1.352)**|(-0.430)|
|Country Effects:<br>Argentina|-1.419"*||**-1.875.'**|-0.140||**-0.693"**||||
||<br>**(-2.829)**||**(-2.783)**|**(-1.250)**||**(-3.521)**||||
|Brazil|-1.412'||**.1.950"**|**-0.091**||**-0.683-**||||
||(-2.684)||**(-2.661)**|**(-0.923)**||(-4.022)||||
|Indonesia|**-0.366**||**-0.172**||||**0.105**||**0.515***|
||**(-1.250)**||(-0.282)||||**(1.060)**||**(1.791)**|
|SouthKorea|0448||**0.028**||||0.824"||**0.639"***|
||.<br>**(1.168)**||<br>(0.043)||||**(5.132)**||**[2.866)**|
|Malaysia|**-1.090"***||-1.512"||||**-0.786**||**4.695"**|
||**(-2.632)**||(-2.564)||||**(-5.686)**||**(-3.315)**|
|Mexico|**-0.881"**||**-0.970**|||||||
||(-2.425)||(-1.430)|||||||
|**C**|3147"*||4.100"'|**1.238"**||**2.273"***|**3.593"**||3.428"|
||.<br>**(10.916)**||<br>**(7.668)**|<br>**(9.000)**||**(8.900)**|**(8.968)**||(6.447)|
|AdjustedR-Squared<br>**FidEfft**|0.022|**0.133**<br>**1980"**|**_0.0_**|**_U.1/8_**|**U.bb/**<br>7431"|**U.135**|**0.18**|0.431<br>4467"|137|
|**xeecs**<br>Chi-Hausman<br>NumberofFirms<br>|**799**<br>|**.**<br>0.250<br>**799**<br> <br>|**799**<br>|**238**<br>|.<br>4.031<br>**238**<br>|**238**<br>|**526**<br>|.<br>**321'**<br>**526**<br>|**526**<br>|
|NumberofObservations<br>Robuststandarderrors-White<br>co|**6137**<br> <br>rrectioniorheteros|**6**<br>**6137**<br>edasticity. Thail|4442<br>andisthebasecountr|**1785**<br>y.T-statisticsarein|**1785**<br>arenthesis.|**1253**|4116|4116|**3033**|
|<br> <br>***-**<br>indicate**1051**percent l|<br> <br>evelofsinificance|<br>respectively||||||||
|**,**<br> **,,,** <br>Instrumenialvariableestimatio<br> <br>toInlt<br>Equity Markets, and anin|g,<br>n<br>(IV): Instruments<br>ar<br>dicator ofeachcoun|.<br>elaggedexplana<br>try'saccesstoin|toryvariablesotFirm<br>terational**bond**mark|s'Characteristics(ex<br>ets.|ceptthevariable|TradableProducers|), laggedvalues**of**the|variableAccess||
Table **Ill:** Panel Estimates for Long-Term Debt _Dependent Variable: Long-Tenn Debt/Equity_

|independent<br>|Pool<br>|Latin America<br>|andEastAsia<br>|PoolL<br>|atinAmerica<br>||Pool <br>|EastAsia<br>||
|---|---|---|---|---|---|---|---|---|---|
|Variables:|OS|Within|**IV**|OLS|Within|**IV**|OLS|Within|**IV**|
|Firms'Characteristics:||||||||||
|LogofNetFixedAssets|**0.109-**|**0.015**|**0.123"'**|0.047|**-D.009**|**0.015**|0.145"|0.014|**0.169"**|
||(6.549)|**(0.789)**|**(5.581)**|**(1.217)**|(-(1.284)|(0.247)|**(7.687)**|**(0.376)**|**(7.125)**|
|NetFixedAssets/Total|_-0.149"_|-0.044|-0.354"|-0.444|**-0.227**|**0.015**|**-0.236-"**|-0.064|**-0.556*"**|
|Assets|**(-2.097)**|(-0.433)|**(-2.933)**|**(-0.039)**|**(-'.171)**|**(0.062)**|**(-2.860)**|(-0.488)|(-4.231)|
|Profits/TotalAssets|-1.747*"|-1.406*"|**-3.465*'**|**-1.305"**|-0.988*-|**-3.771"**|**-2.762"***|**-1.939"***|-4.479-"|
||(-7.784)|**(-5.056)**|**(-7.017)**|**(-6.279)**|**(-4.236)**|**(-3.769)**|**(-8.003)**|**(-3.167)**|**(-6.327)**|
|Tradable Producers|**-0.273"**<br>||**-0.256*'**<br>|**-0.075**<br>||**-0.187**<br>|-0.324"*<br>||**-0.311****<br>|
||**(-4.228)**||(-3.484)|(-0.865)||(-1.411)|(-4.510)||(-3.447)|
|Access:<br>AccesstoInt'lBond|**0.323"**|0.200"*|**0.589"**|**0.153"**|0.143"*|0.445"|0.249-*|**0.233"**|**0.139**|
|Markets|**(4.127)**|(4.179)|(4.049)|**(2.090)**|(4.538)|**(2.538)**|**(2.774)**|(3.334)|**(0.683)**|
|Accessto Int'lEquity|**0.000**|**0.000**|**0.000**|0.432"|0.094|**0.377**|**0.000**|**0.000**|**0.000**|
|Markets|**(0.990)**|**(0.800)**|**(1.635)**|(2.464)|**(0.872)**|(0.840)|**(0.691)**|**(0.817)**|**(1.190)**|
|FinancialLiberalizationan|dCrises:<br>|||||||||
|FinancialLiberalization|**4).528'**|**-0.138**|-0.491."|**-0.329**|**0.123**|**-0.290**|-0.401"|**-0.199'**|**0.337"***|
||<br>**(-4.116)**|**(-1.010)**|(-2.943)|(-1.126)|(0.432)|**(-0.628)**|**(-3.832)**|**(-1.710)**|**(-2.703)**|
|Mexican Crisis**- 1995**|**0.01**0|0.034|-0.048|0.021|**0).059***|-0.002|0.054|**0.070"**|**0.038**|
||**(0.356)**|**(1.289)**|**(-1.270)**|**(0.502)**|**(1.667)**|(-0.034)|**(1.562)**|**(2.070)**|(0.820)|
|AsianCrisis**- 1997**|0.464"|**0.520"**|0.412"|**0.178**|0.134|0.215|**0.378"***|0.464"|**0.390"**|
||(4.559)|(5.524)|(4.023)|(1.448)|**(1.236)**|(1.540)|(3.534)|**(4.367)**|(3.341)|
|AsianCrisis**- 1998**|0.474"'|0.437"|**0.270"**|**0.167"**|0.146"|**0.225"**|**0.616***|**0.652"**|0.284"|
||**(:2.725)**|**(2.759)**|(3.415)|(2.812)|**(2.699)**|**(2.773)**|**(1.803)**|(2.014)|(2.242)|
|_Country_Effects:<br>Argentina|-0208-||-0.243**'|**0.060**||-0.143||||
||.<br>**(-3.616.)**||<br>(-3.442)|<br>**(0.186)**||**(-0.277)**||||
|Brazil|**-0258"'**||4.259"|**-0.092**||**-0.327**||||
||**.**<br>(-3.449)||<br>**(-2.336)**|<br>(-0.449)||(-0.984)||||
|Indonesia|**-0.283"**||**-0.238"'***||||**-0.269"**||**-0.278-'**|
||(-4.100)||**(-2.728)**||||**(-3.572)**||**(-3.188)**|
|SouthKorea|**0.161**||0.042||||**0.170**||0.044|
||(1.243)||**(0.257)**||||**(1.379)**||**(0.315)**|
|Malaysia|**-0.190"'**||**-0.130**||||**0.078**||0.201*|
||<br>**(-2.561)**||(-1.225)||||(0.846)||**(1.870)**|
|Mexico|-0.574"||**-0.661"**|||||||
||(-4.135)||**(-3.716)**|||||||
|**C**|**1027-'**||**0988"**|**0.627"***||1.124"|**0.537"**||**0.399**|
||**.**<br>(5.184)||**.**<br>**(3.663)**|<br>**(3.109)**||<br>**(3.232)**|<br>**(2.188)**||**(1.356)**|
|AdjustedK-squared|Uf0.1b|U.4GA4|**0.16b**|0.043|U423|u.u23|0.210|0.432|U.218|
|FixedEffects||4.12"|||**5.926"'**|||4.104"||
|Chi-Hausman||474090"*|||<br>**3380**|||**8598**||
|<br>NumberofFirms|**7991**|.<br>**799**|**799**|**238**|**.**<br>**238**|**238**|**525**|**.**<br>**525**|**525**|
|NumberofObservations|**6137**|**6137**|4442|**1785**|**1785**|**1253**|4018|4018|**2971**|
|Robuststandarderors-Whitecor|rectionforheteros|kedasticity.Thailan|dIs thebasecouniry.|T-staiisticsare inp|arenthfsis.|||||

***,*"'** indicate **10,5,1,** percent lEvel of signiicance, respectively.

Instrumental variable estimation IV): Instruments are lagged explanatory variables of Firms' Characteristics (except iN variable Tradable Producers), lagged values of the variable Access to Intl Equity Markets, and an indicator of each countrys access to international bond markets.
Table IV: Panel Estimates for Maturity Structure _Dependent Variable: Short-Term Debt/Total Debt_

|Independent<br>|PoolL<br>|atinAmerica<br>|andEastAsia<br>|PoolL<br>|atinAmerica<br>||Pool <br>|EastAsia<br>Wihi|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|Variables:|OLS|Within|**IV**|OLS|Within|**IV**|**OLS**|tn||
|Firms'Characteristics:||||||||||
|LogofNet FixedAssets|-0.042-*<br>**(-15.736)**|**-0.020*..**<br>**(-6.762)**|**.037***<br>**(-8.525)**|**-0.032-**<br>(-6.491)|**.0.015****<br>(-3.246)|-0.012<br>**(-1.198)**|**-0.051"***<br>(-14.340)|**-0.036****<br>**(-6.297)**|**-0.044"***<br>**(-9.800)**|
|NetFixedAssets/Total|**-0.158"***|**-0.078*-**|**-0.180*-**|**-0.231****|**-0.097***|-0.340*|**-0.136"***|-0.021|-0.149"*|
|Assets|**(-9.362)**|(-3.294)|**(-7.887)**|(-4.088)|**(-1.906)**|**(-6.476)**|**(-7.522)**|**(-0.707)**|**(-5.686)**|
|Profits/TotalAssets|**0.187-**<br>|**0.180***<br>|0.222*<br>|**0.131"**<br>|**0.207-**<br>|**0.177**<br>|0.347"<br>|**0.256-**<br>|**0.311-**<br>|
||**(5.101)**|(4.624)|**(1.950)**|(2.254)|**(3.396)**|**(0.653)**|**(7.737)**|(4.815)|(2.566)|
|Tradable Producers|**0.076-**<br>||**0.076-**<br>|0.047<br>||0.044<br>|**0.067***<br>||**0.077-**|
||**(7.714)**||(6.424)|**(1.355)**||**(0.830)**|**(6.160)**||**15.688)**|
|Access:<br>Access toInt'l Bond|**-0.155-**|**-0.088***|**-0.325****|**-0.175..**|**-0.091'**|-0.4.44.|**-0.125-**|**-0.073-***|**-0.248***|
|Markets|**(-9.059)**|**(-7.003)**|**(-8.036)**|**(-6.780)**|**(-4.576)**|(-6.084)|**(-5.026)**|(-4.362)|1-4.366)|
|Access toInt'lEquity|**0.000-**|**0.000**|**0.000-**|**-0.098***|**-0.058**|0.284|**0.000-**|**0.000**|0**000***|
|Markets|(4.092)|**(0.369)**|**(1.993)**|**(-1.698)**|**(-1.217)**|**(1.267)**|(4.726)|(0.414)|**11.916)**|
|FinancialLiberalizationan<br>Financial Liberalization|dCrises:<br>0.084-|**0.026***|**0.030**|0.054*|**0.011**|**-0.062**|**0.079-**|0.045*|**0.051"**|
||**(5.517)**|(1.694)|**(1.592)**|(1.944)|(0.410)|**(-1.295)**|(4.525)|**(2.619)**|12.455)|
|Mexican Crisis**- 1995**|-0.022*|**-0.023-**|**-0.017**|**-0.015**|**-0.028**|-0.024|-0.022*|**-0.018-**|**-0.030***|
||**(-2.013)**|**(-3.039)**|**(-1.323)**|**(-0.672)**|**(-1.638)**|**(-0.900)**|**(-1.715)**|**(-2.067)**|**(-1.763)**|
|Asian Crisis**- 1997**|**-0.018**|**-0.017***|-0.024*|**-0.050***|**-0.039***|**-0.072***|**-0.015**|**-0.017**|**-0.017**|
||**(-1.378)**|**(-1.879)**|**(-1.685)**|**(-1.732)**|**(.1.855)**|(-2.011)|**(-0.957)**|**(-1.580)**|**(-1.031)**|
|AsianCrisis**-1998**|**-0.035***<br>**(-2.061)**|**-0.025***<br>**(-1.968)**|**-0.027**<br>**(-1.526)**|**-0.059***<br>**(-1.925)**|**-0.072-**<br>**(-3.139)**|**-0.079"**<br>(-2.158)|**-0.037**<br>(-1.491)|**-0.033"**<br>**(-2.169)**|**-0.033**<br>**(-1.257)**|
|CountryEffects:||||||||||
|<br>Argentina|-0.092**<br>**(-6.998)**||**-0.072****<br>(-4.123)|**-0.107-**<br>(-2.846)||**0.016**<br>(0.214)||||
|Brazil|**-0.118***<br>**(-8.592)**||**-0.125.**<br>(-6.947)|**-0.126***<br>(-3.480)||**-0.036**<br>**(-0.527)**||||
|Indonesia|0.020||**0.016**||||**0.055-**||0.060M*|
||**(1.372)**||**(0.758)**||||**(3.671)**||**(2.973)**|
|SouthKorea|**0.001**||-0.045-||||**0.023**||**-0.007**|
||**(0.085)**||(-2.098)||||**(1.266)**||**(-0.328)**|
|Malaysia|**-0.071"***||**-0.093****||||**-0.102-**||**-0.093***|
||**(-5.580)**||(-5.246)||||**(-6.006)**||(-4.345)|
|Mexico|**0.081"***||**0.078-**|||||||
||<br>**(3.909)**||**(2.850)**|||||||
|**C**|**0.952-**||**1.030-**|1.024-||**1.077-**|**1.031***||_1.26-_|
||<br>**(32.736)**||<br>**(26.115)**|<br>(17.423)||<br>**(10.366)**|<br>**(26.347)**||(21.419)|
|AdjustedR-Squared<br>|**0.228**|**U.6u1**<br>|**0.218**|U.202|**0.538**<br>|0.162|0.2t1/|U.46<br>|2/T|
|<br>FixedEffects<br>ChiH||8.348-<br>22249|||**6,438-**<br>39422|||**9.327-**<br>**21092**||
|-ausman<br>NumberofFirms<br>NumberofObservations|**799**<br>**6137**|.-<br>**799**<br>**6137**|**799**<br>4442|**238**<br>**1785**|.-<br>**238**<br>**1785**|**238**<br>**1253**|**526**<br>4116|**.-**<br>**526**<br>4116|**526**<br>**3033**|
|<br>Robuststandarderors-Whiteco<br>indicate**1051**percent le|<br>rrection<br>forheteros<br>velofsignificance|<br>kedasticty.Thala<br>respectively.|<br>ndisthebasecouc|<br>Ry.T-satsticsareinp|<br>arenthesis.|||||
|**,,,** <br>Instrumentalvariableestimation<br>(<br>toInt'l Equity Markets, and anind|,<br> <br>IV): Instruments<br>ar<br>icatorofeachcou|<br>elagged explana<br>ntrysaccesstoin|toryvariablesof Firm<br>temationalbondmar|sCharacteristics(ex<br>kets.|cep**t**ihevariable|TradableProducers|), laggedvalues**of**tie|variableAccess||
Table V: Panel Estimaltes for Internal Financing **_Dependent Variable: Retained Earnings/Total Debt_**

|Independent<br>|PoolL<br>|atin America <br>|andEastAsia<br>|PoolL<br>|atin**_America_**<br>|<br>|Pool <br>|EastAsia<br>||
|---|---|---|---|---|---|---|---|---|---|
|Variables:|**-OLS**|Within|**IV**|OLS|Yithin|**IV**|**OLS**|Within|IV|
|Finns'Characteristics:||||||||||
|LogofNetFixedAssets|4.107<br>|**-0.105**<br>|0.021<br>|-1.483<br>|**-0.886**<br>|-1901.780<br>|**-0.027-**<br>|**0.001**<br>|-0.041.*<br>|
||**(-1.321)**|(-1.434)|**(0.365)**|**(-1.163)**|(-1.467)|(-0.012)|(-3.814)|**(0.062)**|(-4.561)|
|Net FixedAssets/Total|4.517|**0.190**|**-1.383**|**-0.096**|3.413|**3717.470**|**-0.053**|**-0.123**|**0.005**|
|Assets|**(-1.500)**|**(0.821)**|(-1.348)|(-0.074)|(1.433)|(0.012)|(-1.448)|(-1.466)|**(0.127)**|
|Profits/TotalAssets|5.442-<br>|**2.118**<br>|**13.478**<br>|**10.608***<br>|**1.957**<br>|**3312.150**<br>|2.444-<br>|2.482-*<br>|2.471-<br>|
||**(3.683)**|(1.439)|(1.468)|(2.148)|**(0.703)**|(0.012)|**(12.969)**|**(8.703)**|**(6.705)**|
|TradableProducers|0.147<br>||0.041<br>|1.439<br>||**844.292**<br>|_0.026-_<br>||**0.035-**<br>|
||**(0.916)**||**(0.381)**|**(0.882)**||(0.012)|**(2.801)**||_(2.451)_|
|Access:<br>Access toIntlBond<br>|40.489<br>|**0.196**<br>|**-2.522**<br>|**-0A97**<br>|**0.756**<br>|2654.600<br>|**-0.008**<br>|.0.021-<br>|**0.056**<br>|
|Markets|_(-1.062)_|**(1.302)**|**(-1.265)**|**(-0.606)**|**(1.137)**|_(0.012)_|**_(-0.590)_**|**_(-3.086)_**|(1.443)|
|Access toIntlEquity<br>|**0.000**<br>|**0.000**<br>|**0.000**<br>|-2.212<br>|**0.310**<br>|540.150<br>|**-0.028**<br>|**0.000**<br>|**0.000**<br>|
|Markets|(0.127)|**(-0.777)**|(1.022)|**(-0.775)**|(C.104)|(0.012)|**(-0.732)**|(-1.342)|**(0.679)**|
|FinancialLiberalizationan<br>|d Crises:<br>|||||||||
|FinancialLiberalization|0.220*|**0.132**|0.046<br>|**10.339**<br>|4.222<br>|13240.700<br>|**0.117-**<br>|**0.085-**<br>|0.143-<br>|
||**(1.738)**|(1.347)|**(0.252)**|(1.221)|**(1.599)**|(0.012)|**(3.752)**|**(3.068)**|(4.281)|
|MexicanCrisis**- 1995**|1.487|1.431|1.741|**7.308**|**5.297**|1634.160|**0.010**|**0.009**|**0.007**|
||**(1.063)**|(1.364)|**(1.006)**|**(1.082)**|**(1.363)**|(0.012)|(0.440)|(0.472)|**(0.261)**|
|AsianCrisis**- 1997**|**-0.093**|0.284|**-0.239**|**-1.623**|**0.056**|**685.088**|**0.023**|**0.018**|_0.025_|
||(-0.541)|**(0.963)**|**(-0.985)**|**(-1.037)**|**(0.036)**|(0.012)|**(0.750)**|**(0.603)**|(0.724)|
|AsianCrisis**- 1998**|**-0.062**<br>|0.458<br>|-0.340<br>|**.0.01**<br>|**1.292**<br>|**879.543**<br>|**0.008**<br>|**.0.011**<br>|**0.011**<br>|
||**(-0.279)**|(1.483)|(-0.904)|**(-0.009)**|**(1.071)**|(0.012)|(0.220)|**(-0.328)**|**(0.283)**|
|Country Effects:<br>||||||||||
|Argentina|**3.605**||5.542|**-0.319**||**-6029.750**||||
||**(1.539)**||**(1.589)**|**(-0.317)**||(-0.012)||||
|Brazil|**0.287-**<br>||**1.035**<br>|||||||
||**(2.621)**||(1.400)|||||||
|Indonesia|**0.325-**||**-0.511**||||**0.362-**||**0.397-**|
||**(3.555)**||**(-0.715)**||||**(9.169)**||**(9.195)**|
|South Korea|**0.830'**||**0.696**||||**0.302-**||**0.365-**|
||(1.894)||**(1.630)**||||**(8.973)**||**(9.968)**|
|Malaysia|**0.031**||**0.519**||||**0.058-**||**0.027**|
||**(0.265)**||(1.164)||||(2.042)||**(0.631)**|
|**C**|**0.087**|||**-9.371**|||**-0.091**|||
||**(0.257)**|||**(-1.138)**|||(-1.401)|||
||||**-0613**|||-12480600|||**-0067**|
||S|~(-1|**.**<br>.065)|||.<br>(-0.012)|||**.**<br>(-0.742)|
|AdjustedR-Squared<br>|UU|<br>**0.160**<br>||**0.015**|**01T4**<br>||**0.229**|0.424<br>||
|FixedEffects||**2.265-**|||2.144-|||**3.579-**||
|Chi-Hausman<br>||0.002<br>|**0.011**<br>||**0.026**<br>|**-0.008**<br>||12.211*<br>|0.314<br>|
|NumberofFirns|**758**|**758**|**758**|**168**|**168**|**168**<br>|**588**<br>|**588**<br>|**588**<br>|
|Number**of**Observations<br>Robust standard errars-Whitecc|**5813**<br> <br>onr<br>k|**5813**<br>edasticity.Thaila|4320<br>ndisthebasecounry|**1251**<br>. T-slatisicsareinp|**1251**<br>arentesis.|**930**|4466|4456|3249|

***,",""** Indicate **10,5,1,** percent level of significance, respectively. Instrumental variable estimation (IV): Instuments are lagged explanatory variables of ims' Characteristics (except ti variable Tradable Producers), lagged values of the variable Access to Intl Equity Markets, and an indicator **of** each country's access to international bond madrets.
> Table VIA: Bank-Based vs. Market-Based Systems **(OLS)**

|DependentVariables:<br>IndependentVariables:|TotalDe<br>Bank|btlEsuity<br>Market|Short-Te<br>Bank|rmDebtEguity<br>Market|Long-Te<br>Bank|rmDebtEquity<br>Market|Short-Te<br>Bank|rmDebtT.Debt<br>Market|Ret.Eam<br>Bank|ings/T.Debt<br>Market|
|---|---|---|---|---|---|---|---|---|---|---|
|Firms'Characteristics:|||||||||||
|LogofNetFixedAssets|0.122*|**0.032**|0.020|**-0.079***|**0.102***|**0.111-**|**-0.058***|**-0.039-**|-0.264|**-0.028"**|
||(2.902)|**(0.628)**|**(0.810)**|**(-1.810)**|(4.189)|**(5.667)**|**(-6.379)**|(-14.378)|(-0.814)|(-5.941)|
|NetFixedAssets/Total<br>|-0.634"*<br>|**-1.278"***<br>|-0.474"*<br>|-1.145"*<br>|**-0.159**<br>|**-0.133**|-0.045|**-0.185***|-4.455|**0.062***|
|Assets|**(-2.720)**|**(.5.588)**|**(-2.930)**|(-5.846)|**(-1.578)**|**(-1.569)**|(-1.341)|**(-11.103)**|**(-1.610)**|**(1.916)**|
|Profits/TotalAssets|**-1.791"***|**-9.639-**|**-0.989"***|**-7.625"**|**-0.802-**|**-1.913***|**0.290****|**0.159-**|**15.583"**|**2.951"**|
||(-4.743)|**(-3.395)**|**(-3.558)**|**(-2.885)**|(-4.820)|(.6.864)|**(3.672)**|(4.012)|**(1.973)**|**(17.672)**|
|TradableProducers|**-0.011**<br>|-0.112<br>|**0.052**<br>|**0.183**<br>|-0.064<br>|**-0.295-**<br>|**0.092***<br>|**0.077***<br>|**0.805**<br>|**0.019***<br>|
||**(-0.082)**|**(-0.377)**|**(0.656)**|**(0.665)**|**(-0.677)**|(-4.220)|**(2.509)**|(7.448)|**(0.523)**|(2.040)|
|Access:|||||||||||
|AccesstoIntIBond|0.220"|**0.329**|**-0.011**|-0.048|**0.231***|**0.377"**|_-0.139-*_|**-0.163-**|-0.540|**0.019***|
|Markets|**(2.070)**|(1.553)|(-0.147)|(-0.354)|**(3.552)**|(3.494)|(-4.607)|**(-7.790)**|**(-0.635)**|(1.846)|
|Access toIntlEquity|**_0.486_**|**0.000**|0.412|**0.000***|**0.075**|**0.000**|-0.041|**0.000-**|**-3.835**|**-0.039**|
|Markets|**(1.597)**|(1.520)|**(1.564)**|(1.924)|**(0.556)**|(0.943)|**(.0.621)**|(4.041)|**(.0.966)**|**(-1.027)**|
|FinancialLiberalization a|nd Crises:||||||||||
|Financial Uberalization|**-0.558"**|-0.694"|**-0.209**|-0.134|-0.349-|**-0.560-**|**0.262****|**0.070"**|**-1.533**|**0.097"**|
||**(-2.522)**|**(-2.058)**|**(-1.320)**|(-0.480)|(-3.149)|**(-3.935)**|(4.413)|(4.473)|_(-0.A54)_|**(3.108)**|
|MexicanCrisis**- 1995**|0.114|**-0.351**|**0.099**|**-0.361**|**0.015**|**0.011**|0.014|**-0.033-**|**7.079**|**-0.356**|
||(1.172)|(.1.126)|(1.174)|(-1.225)|**(0.369)**|(0.304)|**(0.597)**|(-2.641)|(1.064)|(-0.252)|
|AsianCrisis**- 1997**|**0.295**|1.314*|0.141|**0.798***|0.154|**0.516***|**-0.011**|-0.021|**-2.305**|**0.031**|
||(1.436)|**(2.728)**|**(1.371)**|**(1.816)**|**(0.990)**|(4.420)|**(-0.306)**|(-1.545)|(-1.215)|(1.043)|
|AsianCrisis**- 1998**|0.274"|1.343"|**0.100**|**0.763**|0.174"|**0.580"**|**-0.050**|**-0.032**|-0.548|**0.013**|
||**(2.093)**|(2.094)|**(1.203)**|(1.422)|(2.428)|(2.400)|_(-1.648)_|**(-1.555)**|**_(-0408)_**|(0.340)|
|Country Effects:|||||||||||
|<br>Argentina|-0.114<br>||**-0.298"**<br>||0.184*<br>||**-0.194***<br>||**5.282**||
||**(-0.665)**||(-2.538)||**(1.963)**||(-4.887)||(1A14)||
|Brazil||**-1.701"**||-1.437*||-0.264-||-0.112"||0.144"|
|||**(-2.875)**||(-2.574)||**(-3.395)**||**(-8.186)**||(5.446)|
|SouthKorea||**0.583**||0.436||0.147||**-0.018**||**0.302"**|
|||**(1.277)**||**(1.076)**||**(1.031)**||**(-1.096)**||**(9.958)**|
|Malaysia||**-1.338"***||**-1.138"***||-0.200*||**.0.069"**||0.02|
|||**(.2.928)**||**(-2.659)**||(-2.643)||**(-5.350)**||(1.149)|
|**Mexico**||**-1.386'"**||**-0.799"**||**-0.587"**||0.064|||
|||(-3.214)||**(-2.130)**||**(-3.860)**||(3.040)|||
|**C**|1.437"|4.406"|**1.271"**|**3.320"**|**0.165**|**1.086-**|**0.713****|**0.965-**|4.382|**-0.103**|
||**(2.313)**|**(10.811)**|**(2.853)**|**(10.712)**|**(0.567)**|**(5.275)**|(5.894)|(32.474)|(0.584)|(-1.540)|
|AdjustedR-Squared<br>|0.120|0.040|**0.101**|0.022|**0.113**|0.164|0.205|**0.236**|**0.007**|0.341|
|FixedEffects<br>ChiH|||||||||||
|-ausman<br>NumberofFirms|143|**656**|143|**658**|143|**656**|143|**656**|**139**|**619**|
|NumberofObservations<br>|**821**<br>|**5316**<br>|**821**<br>|**5316**<br>|**821**<br>|**5316**<br>|**821**<br> <br>|**5316**<br>|740|5073|
|Robust**standard**mrrr,s-Vwas<br>Bkbd<br>ti<br>Ai|gednWhereroK<br>dIdiM|enastiay.indone<br>kbd<br>|sa**and**Thailand are th<br> <br>|e basecountry,itaban<br>|k-basedandmaret<br>|based systems respe|ctively.<br>T-statisticsare|Inparenthesis.|||
|an-ase<br>counres:<br>rgentna <br>indicate**10,5,1,**percent le|annonesa. <br>velofsignilcance,|ret-ase<br>contries:<br> respectively|Brazi,Malaysia.<br>Me|xico,SouthKorea,an|d Thailand.||||||
# **Table VI.B: Bank-Based vs. Market-Based Systems (Within)**

|DependentVariables:<br>|TotalDebt/Eguit|y|Short-TermDeb|tlEqulty|Long-TermDeb|t/Equity|Short-Term Deb|t/T.Debt|Ret.Earnings/T.|Debt|
|---|---|---|---|---|---|---|---|---|---|---|
|IndependentVariables:|Bank|Market|Bank|Market|Bank|Market|Bank|Market|<br>Bank|<br>Market|
|Firms'Characteristics:|||||||||||
|LogofNetFixedAssets|0.064<br>|**-0.063**<br>|-0.040<br>|**-0.070**<br>|**0.103**|0.007|**-0.026***|-0.019**|-0.478|**-. 023****|
||(0.461)|(-1.104)|**(-0.539)**|(-1.402)|**(1.372)**|**(0.380)**|(-1.954)|**(-5.997)**|**(-1.083)**|**(-3.118)**|
|NetFixedAssets/Total|0.148|**-0.263**|**0.083**|-0.134|**0.065**|**-0.129**|**-0.035**|**-0.097****|**-0.372**|**0.107**|
|Assets|**(0.973)**|**(-0.638)**|**(0.997)**|**(-0.395)**|**(0.680)**|**(-0.863)**|**(-1.169)**|**(-3.138)**|**(-0.253)**|**(1.518)**|
|Profits/TotalAssets|**-2.163"***<br>|**-8A57****|-1.234**|**-6.984***|-0.929***|-1.473***|**0.108**|**0.195****|-6.944|**3.117****|
||(-4.265)|(-2.484)|(-4.079)|**(-2.168)**|**(-3.157)**|(-4.481)|**(0.963)**|(4.610)|(-0.483)|**(17.090)**|
|Access:|||||||||||
|AccesstoIntIBond|0.049|**0.079**|**-0.072**|**-0.161**|0.120**|0.240-*|-0.052*|**-0.100****|**1.081**|-0.021"|
|Markets|(0.649)|(0.413)|**(-1.361)**|**(-0.991)**|**(1.976)**|**(3.889)**|**(-2.175)**|**(-6.779)**|(1.200)|**(-2.277)**|
|Accessto IntEquity|0.045|**0.000**|**0.017**|**0.000**|**0.027**|**0.000**|-0.049|**0.000**|-0.104|**0.000**|
|Markets|**(0.288)**|**(1.075)**|(0.240)|(1.221)|(0.252)|**(0.805)**|**(-1.082)**|**_(0.492)_**|**(-0.030)**|(-1.049)|
|**Financial**Liberalizationa|nd**Crises:**||||||||||
|FinancialLiberalization|-0.410|**-0.515-**|-0.125|-0.400-|**-0.285**|**-0.115**|**-0.015**|0.025|**-3.588**|0.102**|
||**(-0.935)**|(-2.040)|**(-0.547)**|**(-2.233)**|**(-1.135)**|**(-0.820)**|**(-0.219)**|**(1.620)**|**(-0.744)**|**_(2_**<br>)|
|MexicanCrisis**- 1995**|**0.111**|-0.104|**0.082**|-0.144|**0.029**|0.040|**-0.003**|**-0.027*"**|**6.477**|**0.001**|
||**(1.285)**|**(-0.583)**|**(1.319)**|**(-0.874)**|**(0.656)**|(1.204)|(-0.149)|(-3.141)|**(1.289)**|**(0.068)**|
|AsianCrisis**- 1997**|**0.327****|**1.323***|**0.167-**|**0.725**|**0.160**|**0.598****|**-0.028**|-0.014|0.142|0.045|
||**(1.969)**|**(1.832)**|**(2.650)**|**(1.075)**|**(1.130)**|**(5.357)**|**(-1.007)**|**(-1.507)**|**(0.082)**|**(1.570)**|
|AsianCrisis**- 1998**|**0.256***|**1.631*****|**0.099**|**1.095***|**0.157****|**0.536****|**-0.067****|**-0.006**|1.535|**0.017**|
||**(2.390)**|**(2.809)**|**(1.598)**|**(2.292)**|(2.443)|**(2.359)**|**(-2.682)**|(-0.394)|(1.048)|**(0.507)**|
|AdjustedR-Squared|0.441|**0.162**|**0.563**|**0.138**|0.242|0.410|**0.572**|**0.606**|**0.083**|0.476|
|<br>Fixed Effects|4.273**|**2.179****|**7.037****|2.091**|**1.969*****|4.437***|**5.982****|**8.814****|1.433**|**3.100****|
|Chi-Hausman|**0.302**|**0.209**|0.294|0.417|**0.253**|525.41*|4.564|16.124**|4.1196*|**1.150**|
|NumberofFirms|143|**656**|143|**656**|143|**656**|143|**656**|**139**|**619**|
|Number ofObservations|821|**5316**|**821**|**5316**|**821**|**5316**|821|**5316**|740|**5073**|

Robust standard errors-White correcton for heteroskedasticity. T-statstlcs are In parenthesis. indicate **10,5,1,** percent level of significance, respectively
Table VI.C: Bank-Based vs. Market-Based Systems (Instrumental Variables)

|DependentVariables:<br> <br>Independent Variables:|TotalDebt/Equity<br>Bank|<br>Market|Short-TermDe<br>Bank|bt/Equity<br>Market|Long-Term Deb<br>Bank|t/Equity<br>Market|Short-TermDeb<br>Bank|tTTDebt<br>Market|Ret.Earnings/T<br>Bank|.Debt<br>Market|
|---|---|---|---|---|---|---|---|---|---|---|
|Firms'Characteristics:<br>|||||||||||
|LogofNetFixed Assets|**0.181***|**-0.039**|**0.032**|**-0.157***|0.149*|**0.118-**|**-0.056****|-0.034-*|0.432|**-0.062*-**|
||**(2.932)**|**(-0.508)**|**(0.880)**|(-2.354)|(4.344)|(4.617)|(-4.525)|**(-7.201)**|**(1.103)**|**(-5.801)**|
|Net FixedAssets/Total|**-1.625-***|**-1.762***|**-0.926****|-1.454-*|**-0.699***|**-0.308"**|**-0.019**|-0.204*|**-12.371**|0.148-|
|Assets|(-4.211)|**(-5.773)**|_(-4A19)_|**(-5.926)**|**(-2.808)**|(-2.314)|**(-0.213)**|**(-8.396)**|**(-1.528)**|**(3.166)**|
|Profits/TotalAssets|**-2.523***<br>|-20.364-<br>|-1.425*<br>|**-16.185"***<br>|**-1.098***<br>|-4.179-<br>|0.249<br>|**0.183**<br>|37.242<br>|2.245-<br>|
||(-2.274)|(-4.613)|**(-1.950)**|**(-3.880)**|**(-1.880)**|**(.6.526)**|**(0.989)**|(1.409)|**(1.262)**|**(6.081)**|
|Tradable Producers|**-0.030**<br>|**0.330**<br>|**0.096**<br>|**0.577**<br>|**-0.125**<br>|-0.247-<br>|**0.100***<br>|**0.080***<br>|**0.097**<br>|0.048-<br>|
||**(-0.101)**|**(0.837)**|**(0.722)**|**(1.569)**|**(-0.613)**|(-3.094)|**(1.716)**|(6.421)|(0.048)|(3.142)|
|**Access:**|||||||||||
|AccesstoInt'lBond|**1.273***|0.784|**0.552***|**0.261**|**0.722-**|**0.523-**|-0.423-|-0.334-<br>|-10.194<br>|0.155*<br>|
|Markets|(2.674)|**(0.917)**|**(1.739)**|**(0.326)**|(3.044)|**(2.669)**|(-4.070)|**(-6.578)**|**(-1.207)**|**(3.866)**|
|AccesstoIntlEquity<br>|0.646<br>|**0.000***<br>|**0.559**<br>|**0.000**<br>|**0.087**<br>|**0.000**<br>|**0.312**<br>|**0.000***<br>|**8.083**<br>|**0.000**<br>|
|Markets|**(0.395)**|**(1.671)**|**(0.618)**|**(1.579)**|**(0.110)**|(1.614)|(1.428)|**(1.961)**|(0.934)|**(1.386)**|
|FinancialLiberalizationa<br>|ndCrises:<br>||||||||||
|Financial Liberalization|**-0.860**|-0.542|**-0.566**|**-0.051**|-0.294|**_-0.491-_**|**0.611**|**0.023**|19.411|**0.158-**|
||(-0.892)|(-1.142)|**(-0.639)**|(-0.124)|**(-0.728)**|**(-2.790)**|(1.143)|**(1.165)**|(1.345)|(4.566)|
|MexicanCrisis**- 1995**|**0.139**|**-0.798**|**0.119**|**-0.719**|**0.019**|**-0.079**|**0.001**|**-0.029***|**6.137**|0.004|
||**(1.150)**|**(-1.277)**|**(1.298)**|(-1.212)|**(0.350)**|**(-1.583)**|**(0.023)**|(-1.844)|(1.002)|(0.222)|
|AsianCrisis**- 1997**|**0.326**|**0.873**|0.145|0.435|**0.181**|**_0.438_**|**-0.018**|**-0.028***|-4.475|**0.029**|
||(1.465)|**(1.293)**|**(1.355)**|**(0.688)**|**(1.093)**|**(3.734)**|**(-0.472)**|**(-1.828)**|**(-1.510)**|**(0.883)**|
|AsianCrisis**- 1998**|**0.353"**|0.664|**0.160**|**0.392**|0.194-|**0.272-**|**-0.051**|**-0.025**|**-3.301**|**0.016**|
||(2.110)|**(0.984)**|**(1.460)**|**(0.609)**|**(2.436)**|**(2.633)**|_(-1.484)_|**(-1.205)**|**(-1.095)**|**_(0.420)_**|
|CountryEffects:<br>ArgentIna|||||||||||
|Brazil|**0.068**|-2.445-|-0.242|-2.142"*|**0.310-**|**-0.303"**|-0249-|**-0.119***|9.034|0.046|
||**(0.226)**|**(-2.896)**|**(-1.069)**|**(-2.691)**|**(2.038)**|**(-2.600)**|**(-2.567)**|(-6.433)|**(1.367)**|**(1.161)**|
|SouthKorea||0.040||**0.000**||0.040<br>||**-0.062-**<br>||**0.411*"**<br>|
|||**(0.052)**||**(0.000)**||**(0.228)**||**(-2.698)**||**(10.556)**|
|Malaysia||**-1.789-**||**-1.637-***||-0.152||**-0.088***||-0.054<br>|
|||(-2.694)||**(-2.637)**||(-1.419)||(-4.856)||(-1.291)|
|Mexico||**-1.530***||**-0.877**||**-0.653-**||**0.062-**|||
|||(-1.941)||(-1.214)||(-3.432)||**(2.151)**|||
|**C**|**1.808**|**5.376-**|2.020|4.336"*|-0.212|**1.039"**|-0.041|**1.030-**|**-45.677**|0.034|
||(0.884)|(7.402)|**(1.105)**|**(7.139)**|(-0.240)|**(3.692)**|**(-0.036)**|**(25.755)**|(-1.340)|**_(0A08)_**|
|AdjustedR-Squared<br>|0.074|**0.030**|0.047|**0.017**|**0.096**|**0.160**|**0.196**|**0.218**|**-0.003**|**0.329**|
|FixedEffects|||||||||||
|Chi-Hausman|||||||||||
|Numberof Firms<br>|143<br>|**656**<br>|143<br>|**656**<br>|143<br>|**656**<br>|143<br>|**656**<br>|**139**<br>|**619**<br>|
|Number**of**Observations<br>Robuststandardrarrs-Whitec|543<br>orrection<br>**for**heteros|**3899**<br>kedesticity.<br>Indonesisan|543<br>d Thaeand<br>are the base c|**3899**<br>ountry,<br>forbank-base|543<br>d<br>and market based sy|**3899**<br>stems respectively.<br>T-s|543<br> <br>tailsticsare in parent|**3899**<br>hesis.|524|**3796**|

Bank-based countries: Argentin **a** nd Indonesia. Market-based countries: Breall. Malaysia, Mexico, South Korea, and Thailand. Instruments are legged expanatory varbles **on** Firms' Characteristics (eceOpti evariable Tradable Producers). lagged values of the vadable **o** acoess to intemational equfty markets, **and** an indicator **of** country' access to **bond** markets.
# Appendix Table **1:** Argentina

|DependentVariables:<br>Indeendent Variables:|TotalDebt/Equ<br>**OLS**|ity.<br>|Short-TermDeb<br>|t/Equit<br>|Long-TermDeb|t/Equity|Short-TermDe|bt/T.Debt|RetEarnings/T|Debt|
|---|---|---|---|---|---|---|---|---|---|---|
|p||Within|**OLS**|Within|**OLS**|Within|**OLS**||. <br>|.<br>|
|||||||||Within|**OLS**|Within|
|Firms'Characteristics:<br>|||||||||||
|LogofNet FixedAssets|**0.263*"**<br>(4406)|**0.605'"**<br>**2851**|**0.136"***<br>|**0.355"***<br>|**0.127"**<br>|**0.119**|**-0.088*'**|-0.299"*|**-0.356**|**0189**|
||.|**(.)**|(3.114)|(2.828)|(4.485)|**(1.288)**|(-2.842)|(-2.884)|<br>**(-0.338)**|**.**<br>(0.157|
|NetFixedAssets/Total<br>|**-1.177"***<br>|**-0.007**<br>|**-0.786"***<br>|**-0.373**<br>|**-0.398"***|**0.536**|**0.070**|-0148|-5048|**6515**|
|Assets|**(-5.188)**|**(-0.008)**|(-4.644)|**(-1.153)**|(-4.080)|**(0913)**|(n.75)|.<br>_n(-_**_7A1_**|.<br>(I.m|**.**<br>_(.93m_|
|Profits/TotalAssets|**-1.681*"**<br>(-3124)|**-1.748****<br>**3197**|**-1.112"***<br>|-1.240"*<br>|**-0.571"**<br>|-0.495|**-0.099**|-0101||_1ar.0_<br>**_ICOAA_**|
||.|**(-.)**|(-2.949)|(4.416)|**(-2.258)**|**(-1.186)**|**(-0.677)**|(-0.475)|(2.476)|(1.429)|
|Tradable Producers|**-0.155**<br>(-1.034)||0.020<br>**(0.270)**||**-0.176**<br>(-1.484)||**0.038**<br>**(0.721)**||-0.493<br>**(-0.253)**||
|FirmAge|**0.001**<br>(0746)|**0.039***<br>|**-0.003**<br>|**0.013**<br>|0.002"<br>|**0.028***|-0.004|**0.011**|**-0.031**|**0771**|
||.|**(1.816)**|**(-0.260)**|**(1.088)**|**(2.081)**|(1.921)|**(-0.812)**|**(1.015)**|**(-1.082)**|**.**<br>**(1.292)**|
|Domestic CurrencyDebt|||||||0.406"*<br>(6.742)|**0.315"***<br>**(3.110)**|||
|Access:<br> '|||||||||||
|Access toIntlBond<br>|**0.096**<br>|**-0.005**<br>|**-0.033**|**-0.065**|**0.127"**|0.064|**-0.099***|-0044|**0009**|**0529**|
|Markets|**(0.997)**|**(-0.072)**|**(-0.507)**|(-1.347)|**(2.063)**|**(1.273)**|<br>**(-1.755)**|.<br>**(-1.203)**|**.**<br>**(0.011)**|**.**<br>**(0.635)**|
|AccesstoIntlEquity<br>Markets|**-0.032**<br>|-0.140<br>|**-0.103**<br>|**-0.061**<br>|**0.092**|**-0.101**|**-0.071**|**0.108***|**-0.930**|0486|
||(-0.209)|**(-1.059)**|**(-1.223)**|**(-1.005)**|**(1.075)**|**(-0.898)**|**(-0.601)**|(1.849)|<br>**(-0.585)**|.<br>**(0.170)**|
|Financial Liberalizationa<br>Fiil|ndCrises:<br>**"***||||||||||
|nancaLiberalization|**-0.739**<br>|**-2.065****<br>|-0.348"'*<br>|**-1.267*"**<br>|**-0.390"***|-0.432*|**0.511*****|**0.000**|**2578**|-2342|
||(-4.145)|(-4.003)|**(-3.078)**|**(-3.906)**|**(-3.848)**|**(-1.806)**|(4.821)|<br>**(0.000)**|**.**<br>**(0.715)**|.<br>(-0.274)|
|MexicanCrisis<br>**19095**|e<br>0.8<br>|**..**<br>|**1**<br>|**0.051**|**-0.037**|-0.048|0.219"|0142'|**1301**|1064|
||**(0.926)**|(-0.125)|**(1.356)**|**(1.096)**|**(-0.870)**|**(-1.156)**|<br>(4.956)|..<br>**(2.774)**|**.**<br>**(0.593)**|.<br>(0.443)|
|Asian Crisis**- 1997**|**0.269**<br>|**0.008**<br>|0.221<br>|**0.099**|**0.055**|**-0.080**|||**-1303**|-3948|
||**(1.507)**|(0.046)|**(1.510)**|**(0.936)**|(0.846)|**(-0.747)**|||**.**<br>**(-0.822)**|.<br>(-1.447)|
|Asian Crisis**- 1998**|**-0.055**<br>|**-0.176**<br>|-0.048|**0.001**|**0.009**|**-0.162**|||0445|**3100**|
||**(-0.372)**|**(-0.679)**|**(-0.601)**|**(0.017)**|**(0.108)**|**(-0.900)**|||.<br>**(0.386)**|**-.**<br>(-0.921)|
|**C**|**_0.982"_**<br>||0.574"<br>||0.416||**0.000**||**1.874**||
||(2.146)||(2.314)||(1.497)||**(0.000)**||**(0.261)**||
|AdinitedR-Snuared<br>FixedEffects<br>|**0.113**|**U.bb3**|U1b|**U.11d**|**U.Ub**|**_U.291_**|0.344|**U.714**|**U.010**|**U.UTE**|
|Chi-Hausman<br>NumberofFirms|**63**|14.910"<br>**63**|**63**|14.205"<br>||**16.781"**<br>||16.141"*||**8.866"**|
|<br>Nbf|<br>|<br>|<br>|**63**|**63**|**63**|**60**|**60**|**63**|**63**|
|umeroObservations<br>Robuststandard-Whit|341<br>i|341<br>|341<br>|341<br>|345<br>|345|<br>**228**|<br>**228**|<br>**277**|**277**|
|errorsecor<br>indicate**10,5,1,**percent le|ectonforheterosk<br>velofsignificance,r|edasticity.Indonesiaan<br>espectively|dThailandarethebase|country.T-statisticsar|einparenthesis.||||||
# **Appendix Table II: Argentina (Financial Development)**

|**DependentVariables:**|**Total Debt/Equit**|**y**|**Short-Term Deb**|**t/Equity**|**Long-TermDeb**|**t/Equity**|**Short-Term Deb**|**t/T.Debt**|**Ret.Earnings/T**|**.Debt**|
|---|---|---|---|---|---|---|---|---|---|---|
|**Independent Variables:**|**OLS**|**Within**|**OLS**|**Within**|**OLS**|**Within**|**OLS**|**Within**|<br>**OLS**|<br>**Within**|
|Firms'Characteristics:|||||||||||
|**Log**ofNet FixedAssets|**0.252***|**0.592****|**0.130"***|0.340"|0.120*"|**0.107**|**-0.089***|**-0.309****|**-0.300**|**-0.085**|
||(4.080)|(2.704)|(2.901)|**(2.577)**|(4.062)|**(0.959)**|**(-2.889)**|(-2.922)|**(-0.273)**|**(-0.063)**|
|NetFixed_Assets/Total_<br>|-1.159<br>|0.242|**-0.778****|**-0.273**|-0.384"|**0.708**|**0.076**|**-0.131**|-4.448|**13.520**|
|Assets|(-4.918)|**(0.265)**|(-4.473)|**(-0.796)**|**(-3.730)**|(1.002)|**(0.819)**|(-0.642)|**(-0.906)**|**(1.611)**|
|Profits/Total Assets|**-1.719***|**-1.885*"**|**-1.116***|**-1.296****|**-0.605***|**-0.573**|**-0.106**|**-0.098**|**17.198***|**20.839**|
||**(-3.078)**|**(-3.199)**|**(-2.869)**|(4.354)|**(-2.321)**|**(-1.258)**|**(-0.700)**|**_(-0.461)_**|(2.466)|**(1.591)**|
|Tradable Producers|-0.143||**0.030**||-0.174||0.040||0.134||
||**(-0.951)**||**(0.386)**||(-1.466)||**(0.769)**||**(0.068)**||
|FirmAge|**0.001**<br>|**0.011**<br>|**-0.001**<br>|**0.001**<br>|0.002*|-0.002|**-0.000**|**-0.061**|**-0.035**|-2.169*|
||**(0.625)**|**(0.217)**|(-0.403)|**(0.056)**|**(2.013)**|(-0.040)|**(-0.910)**|**(-0.720)**|**(-1.171)**|(-1.794)|
|Domestic CurrencyDebt|||||||0.411*|**0.313"***|||
||||||||**(6.860)**|**(3.099)**|||
|**Access:**|||||||||||
|Access toInt'Bond|**0.098**|**-0.001**|**-0.037**|**-0.061**|**0.136"**|**0.062**|**-0.101***|-0.049|**-0.060**|**-0.303**|
|Markets|**(1.028)**|(-0.014)|**(-0.556)**|**(-1.215)**|**(2.229)**|(1.146)|**(-1.792)**|**(-1.293)**|**(-0.067)**|**(-0.260)**|
|Accessto_Intl_Equity|**-0.029**|-0.141|**-0.119**|**-0.059**|**0.098**|**-0.096**|**-0.085**|0.122*|-1.824|**0.955**|
|Markets|(-0.184)|(-1.102)|**(-1.328)**|(-1.040)|(1.042)|**(-0.850)**|**(-0.713)**|(2.111)|**(-1.071)**|**(0.283)**|
|FinancialLiberalization|and Crises:||||||||||
|FinancialLiberalization|**-0.928****|**-2.030****|-0.465*|**-1.226***|-0.458*|**-0.392**|0.491*|**0.000**|**-5.912**|-0.475|
||(-4.469)|**(-3.652)**|**(-3.552)**|**(-3.550)**|**(-3.787)**|(-1.291)|(4.491)|**(0.000)**|(-1.244)|**(-0.057)**|
|FinancialDevelopment|**0.506**|**0.353**|**0.308**|**0.150**|**0.193**|**0.361**|**0.090**|**0.616**|**12.816***|41.754*|
||(1.486)|**(0.523)**|(1.476)|**(0.536)**|**(0.937)**|(0.649)|**(0.853)**|(0.846)|**(1.679)**|**(2.218)**|
|Mexican Crisis-**1995**|0.034|0.002|0.104|0.054|**-0.066**|-0.040|0.204*|0.211"|**-0.036**|**0.915**|
||**(0.270)**|**(0.032)**|**(0.939)**|**(1.159)**|**(-1.178)**|**(-1.026)**|(4.247)|(2.212)|(-0.014)|**(0.369)**|
|AsianCrisis**- 1997**|**0.167**|0.040|**0.159**|0.114|**0.016**|-0.043|||**-3.392**|**-0.852**|
||**(0.871)**|**(0.229)**|**(1.061)**|**(1.008)**|**(0.197)**|(-0.422)|||(-1.545)|(-0.348)|
|**C**|**1.207***||0.704-||**0.510***||**0.000**||**12.062**||
||**(2.509)**||**(2.747)**||**(1.667)**||**(0.000)**||**(1.113)**||
|AdjustedR-Squared|0.12|**0.58**|**0.119**|0.714|**0.078**|0.314|0.343|0.714|**0.037**|**0.096**|
|<br>FixedEffects||||**11.711****||**2.880****||5.745"*||1.441"|
|Chi-Hausman||10.219*||12.708*||**6.768**||**16.847****||**9.0764****|
|Number**of**Firms|**63**|**63**|**63**|**63**|**63**|**63**|**60**|**60**|**63**|**63**|
|Numberof Observations<br>|**332**<br>|**332**<br>|**332**<br>|**332**|**335**|**335**|**228**|**228**|**267**|**267**|
|Robuststandarderrors-Whitec<br>Thevariable"financialdevelop|orrectionforheteroske<br>ment"isiheinteraction|dastidty.T-statistics <br> ofdomesticfinancial|are inparenthesis.<br>developmentandfinan|cialliberalization|||||||

***.".*"** indicate _10ta._ vercent level **of** sonificance renectively
# Appendix Table **III:** Argentina (Instrumental Variables) **1**

|DependentVariables:|TotalDebt/Equit|y|Short-TermDe|btEquity|Long-TermDeb|t/Equity|Short-TermDe|bt/T.Debt'|Ret.EarningsT|.Debt|
|---|---|---|---|---|---|---|---|---|---|---|
|IndependentVariables:|**IV**|IV**-** FD|**IV**|IV**-** FD|**IV**|IV**-** FD|**IV**|IV**-**FD|<br>**IV**|<br>IV**-** FD|
|Firms'Characteristics:<br>|||||||||||
|Log**of**NetFixedAssets|**0.128**<br>|**0.111**|**0.003**|**-0.007**|**0.119-***|_0.114"_|**-0.080"**|**-0.082"**|0.092|0.145|
||**(1.367)**|(1.129)|(0.041)|(-0.102)|**(2.598)**|**(2.469)**|(-2.114)|(-2.149)|**(0.076)**|**(0.116)**|
|NetFixedAssets/Total<br>|**-1.173"**<br>|-1.129-"<br>|**-0.608****|**-0.581'"**|**-0.576"**|**-0.552"**|**0.176**|**0.180**|**-7.960**|**_-7A57_**|
|Assets|**(-3.131)**|**(-2.987)**|**(-3.027)**|(-2.845)|**(-2.223)**|**(-2.137)**|(1.491)|(1.543)|**(-1.299)**|**(-1.225)**|
|Profits/Total Assets|**-2.712"***<br>|**-2.9971-**<br>|-1.488"<br>|**-1.630"**<br>|**-1.250"***<br>|**-1.380*-**<br>|-0.040<br>|-0.054<br>|**27.634"**<br>|25.434"<br>|
||**(-2.63711**|**(-2.833)1**|(-2.109)|**_(-2241)_**|**(.2.691)**|**(-2.8871)**|**(-0.125)**|(-.,0|t2.213)|(2.0-,0)|
|TradableProducers|**-0.119**<br>|**-0.138**|**0.108**|**0.100**|-0.224|**-0.237**|**0.056**|**0.057**|**-0.806**|**-0.352**|
||(-0.465)|(-0.534)|**(0.905)**|**(0.836)**|**(-1.091)**|(-1.144)|(0.840)|**(0.869)**|**(-0.391)**|**(-0.171)**|
|FirmAge|**0.000**<br>|**0.000**<br>|**-0.001**<br>|**-0.001**<br>|0.002*|0.002*|**0.000**|**0.000**|**-0.030**|**-0.031**|
||**(0.058)**|**(0.039)**|**(-0.820)**|**(-0.886)**|**(1.778)**|**(1.803)**|**(-0.015)**|(-0.044)|**(-1.076)**|**(-1.116)**|
|DomesticCunencyDebt|||||||**0A39"**|0.443"*|||
||||||||**(5.235)**|**(5.362)**|||
|Access:<br>|||||||||||
|Accessto**Infl**Bond<br>|1.047"<br>|1.021m|**0.638"**|**0.628"**|0.424"|0.400"|**-0.186***|**-0.186***|**-0.877**|**-1.651**|
|Markets|(2.940)|(2.864)|**(2.378)**|**(2.320)**|(2.243)|**(2.106)**|**(-1.961)**|(-1.946)|**(-0.328)**|**(-0.582)**|
|AccesstoInfIEquity<br>|**-0.635**<br>|-0.546<br>|**-0.521**<br>|-0.494|-0.052|-0.020|**0.000**|**0.000**|0.541|**0.761**|
|Markets|**(-1.238)**|**(-1.081)**|**(-1.562)**|**_(-1A78)_**|**(-0.276)**|**(-0.105)**|**(0.000)**|**(0.000)**|**(0.217)**|**(0.278)**|
|Financial Liberalizationa|nd Crises:||||||||||
|FinancialLiberalization|-0.497"|**-0.971*"**|**-0.178**|-0.433*|**-0.318"***|**-0.532*-**|**0.000**|**0.000**|**2.030**|-5.522|
|Financial Development||**0.726**||**0.391**||**0.326**||**0.061**||11A78|
|||**(1.572)**||**(1.331)**||**(1.382)**||**(0.369)**||(1.584)|
|MexicanCrisis**- 1995**|**0.217**<br>|0.140|0.225'|**0.185**|**-0.006**|-0.042|**0.203"**|**0.197"**|**0.786**|**_-0.430_**|
||**(1.613)**|**(1.001)**|**(1.837)**|**(1.516)**|**(-0.106)**|(-0.643)|**(3.828)**|(3.493)|**(0.360)**|**(-0.175)**|
|AsianCrisis**- 1997**|**0.321**|**0.206**|0.264|0.202|**0.069**|**0.015**|||**-1.530**|**-3.384**|
||(1.647)|**(0.987)**|(1.644)|**(1.238)**|**(0.935)**|**(0.170)**|||**(-0.916)**|(-1.540)|
|AsianCrisis**- 1998**|**-0.060**||**-0.039**||**0.006**||||0.224||
||(-0.314)||**(-0.378)**||**(0.056)**||||**(0.160)**||
|**C**|**1.456***|**2.227"**|1.074*|1.489"|0.426|0.754*|1.009"|**0.978"***|0.904|10.045|
||**(1.752)**|(2.480)|**(1.670)**|(2.154)|**(1.057)**|**(1.687)**|**(3.610)**|**(3.271)**|**(0.103)**|(0.846)|
|AdjustedR-Squared|**0.050**|**0.059**|**0.027**|**0.030**|**0.060**|**0.067**|**0.362**|**0.366**|**-0.011**|**.0.007**|
|FixedEffects<br>|||||||||||
|Chi-Hausman|||||||||||
|NumberofFirms|**63**|**63**|**63**|**63**|**63**|**63**|**60**|**60**|**63**|**63**|
|Number_of_Observations|**278**|**269**|**278**|**269**|**282**|**272**|**167**|**167**|274|264|
|WithandwithoAFinancial D|evelopment||||||||||

> **2** There is not data for debt curency deorination in **1997** and **1998.** Robust Standard errors-Whito correction for heteroskedasticity. T-statislics are in parenthesis. The variable *inancial develoPMent is the interaction of domesticlinancial development and financial liberalization. ***,",*"** Indicate 10,5,1, percent level of significance, respectively
**Appendix Table IV: Panel Estimates for Debt-Equity Ratios (Financial Development)** **_Dependent Variable: Total Debt/Equily_**

|Independent<br> <br>|PoolLatin Ameri<br>|caandEast <br>|Asia<br>|PoolL<br>|atin**America**<br>||**Pool** <br>|EastAsia<br>|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|Variables:|**OLS**|Within|**IV**|OLS|Within|**IV**|**OLS**|Within||
|Firms'Characteristics:||||||||||
|LogofNet FixedAssets|0.034|-0.049|**0.006**|0.045|**0.000**|**-0.072**|**-0.007**|**-0.178***|0.042|
||**(0.898)**|(-1.044)|**(0.101)**|**(0.999)**|**(-0.001)**|**(-0.895)**|**(-0.161)**|(-2.100)|**(0.631)**|
|NetFixedAssets/TotalAssets|-1.204.*|**.0.196**|**-1.739m**|-0.947"|-1.491"*|**-0.775"**|-1.574*"|**0.069**|**-1.963*-**|
||**(-5.483)**|(-0.543)|**(-6.687)**|(-4.564)|**(-3.396)**|**(-2.260)**|(-6.414)|(0.174)|**(-7.379)**|
|Profits/TotalAssets|**-8.296***<br>|**-8.095***<br>|**-15.988-**<br>|**-2.872-***<br>|-2.346*<br>|-7.455**<br>|**-10.808*"**<br>|**-8.784**<br>|**-20.627"***<br>|
||**(-3.382)**|(-2.544)|(-4.507)|**(-8.820)**|**(-6.188)**|**(-5.270)**|(-5.208)|(-3.242)|**(-3.992)**|
|Tradable Producers|-0.204<br>||**0.110**<br>|-0.222*<br>||**-0.367"**<br>|-1.064-<br>||**-0.070**<br>|
||**(-0.785)**||**(0.318)**|**(-1.927)**||**(-2.125)**|**(-4.708)**||**(-0.297)**|
|Access:<br>Access toIntlBondMarkets|0.340"<br>|0.120<br>|0.812*<br>|0.104<br>|**0.032**<br>|**0.801-**<br>|0.144<br>|**0.059**<br>|-0.494<br>|
||(2.144)|**(1.227)**|**(1.837)**|**(1.168)**|(0.588)|**(3.028)**|**(0.683)**|(0.345)|(-1.250)|
|Access toInt'lEquityMarkets|**0.000**<br>|**0.000**<br>|**0.000-**<br>|**0.650-**<br>|0.164<br>|0.714<br>|**0.000***<br>|0.000*<br>|**0.000"***<br>|
||(1.584)|(0.849)|**(2.980)**|(3.046)|**(0.916)**|(1.041)|**(1.709)**|**(0.908)**|(3.141)|
|FinancialLiberalizationandC<br>FinancialLiberalization|rises:<br>**-0.789****<br>|**-0.707**<br>|**-0.998-***<br>|**-0.697-**<br>|-0.148<br>|**-0.702**<br>|-0.464<br>|-0.440<br>|**-0.692**<br>|
||**(-3.167)**|(-1.495)|(-2.741)|(-2.254)|(-0.546)|**_(-1.159)_**|(-1.241)|**(-1.063)**|**(-1.535)**|
|Financial Development|**0.069**<br>|0.074<br>|**0.129**<br>|**0.339"**<br>|**0.335-**<br>|0.440"<br>|**-0.072**|**-0.035***|0.043|
||**(0.835)**|(0.552)|**(1.099)**|**(2.576)**|(2.894)|(2.495)|**(-1.531)**|**(-0.659)**|**(0.660)**|
|MexicanCrisis**- 1995**|**-0.268**|**-0.108**|**-0.520**|**0.007**|-0.008|0.054|0.234*|0.121*|**0.001**|
||**(-0.861)**|**(.0.680)**|(-1.047)|**(0.096)**|**(-0.123)**|(0.499)|(1.884)|**(1.316)**|**(0.009)**|
|Asian Crisis**- 1997**|**1.229-**|**1.116***|**0.800**|0.210|**0.185**|**0.313***|**0.937-**|0.714|**0.602"**|
||**(2.556)**|**(1.739)**|**(1.306)**|**(1.208)**|**(1.301)**|**(1.752)**|**(3.680)**|**(3.555)**|**(2.748)**|
|Country Effects:||||||||||
|Argentina|**-1.272-***<br>(-4.998)||-1.547*-<br>**(-3.412)**|**0.198**<br>**(0.556)**||-0.492<br>**(-0.759)**||||
|Brazil|-1.450**<br>**(-3.315)**||**-1.916-**<br>**(-2.915)**|**-0.126**<br>**(-0.518)**||**-0.963-**<br>(-2.204)||||
|Mexico|**-1.151*"**<br>**(-3.360)**||**-1.330***<br>**(-1.936)**|||||||
|Indonesia|**-0.391***<br>||**-0.086**<br>||||**0.685***<br>||**0.383**<br>|
||(-2.094)||**(-0.166)**||||**(1.735)**||**(0.979)**|
|SouthKorea|**0.777***||0.149||||**1.944"**||**0.615***|
||**(1.708)**||**(0.189)**||||**(5.857)**||**(1.875)**|
|Malaysia|-1.264"||**-1.763-**||||**0.000**||-0.854-|
||(-2.084)||**(-2.178)**||||**(0.000)**||(-2.204)|
|**C**|4.259-*||5.340-|2.260-||**3.876-***|4.276-*||4.530m|
||<br>**(8.262)**||<br>**(6.620)**|**(7.568)**||**(8.513)**|(7.826)||(4.748)|
|AdjustedR-Squared|0.040|**0.155**|**0.029**|**0.075**|0.483|**0.055**|0.246|**0.507**|**0.198**|
|<br>FixedEffects<br>||**2.037-**<br>|||**6.866**<br>|||**5.879-***<br>||
|Chi-Hausman<br>NumberofFirms<br> fOi|**778**<br>|**0.153**<br>**778**<br>|**778**<br>42|**230**<br>**1713**|**1.961**<br>**230**<br>**1713**|**230**<br>1210|**281**<br>**203**|**206.73-**<br>**281**<br>**2503**|**281**<br>2944|
|Numberobservatons<br>Robust standarderos-Whitecorrec|**5930**<br>tion**for**hetemskedast|**5930**<br>icity.Basecoun|96<br>tryis Thailand. T-stat|<br>istics areinpareithas|<br>is.||**5**|||
|Thevaiablefinancialdevelopmne<br> <br>**i,'"**<br>indicate**10,5.1,**percentlevel|<br>nt<br>is theinteraction**of** <br>ofsignificance,respe|<br>domestic<br>financia<br>ctively|<br>ldevelopmnatandfi|nancialliberalization-||||||
**Appendix Table V: Panel Estimates for Short Term Debt (Financial Development)** **_Dependent Variable: Short-Term Debt/Equity_**

|**Independent**<br>Variables:|**oo)tmAm**<br>OL|**eicaandE **<br>Within|**astAsia**<br>**IV**|**Poo**<br>OLS|**lLatinAme**<br>%WithIn|**rica**<br>**IV**|**Poo**<br>**OLS**|**lEastAsia**<br>**Within**|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|Firms'Characteristics:||||||||||
|LogofNetFixedAssets|**-0.068"**<br>(-2.240)|**-0.059**<br>**(-1.530)**|**-0.115"**<br>**(-2.323)**|**-0.005**<br>(-0.445)|**_0.010**<br>(4.941)|**-0.095****<br>(-3.949)|**-0.096****<br>(-2.644)|**-0.125***<br>**(-1.733)**|**-0.100***<br>**(-1.738)**|
|NetFixedAssets/Total|**-1.057*****|**-0.135**|-1.410**|-0.964"*|**-0.370"***|**-0.768"***|-1.433"*|-0.204|-11.458*-|
|Assets|**(-5.582)**|(-0.441)|**(-6.917)**|**(-12.179)**|**(4.376)**|**(-5.568)**|**(-7.800)**|**(-0.655)**|**(-7.176)**|
|Profits/Total Assets|**-6.522****|**-6.612"**|-12.462"'|**-1.522"***|**-1.191"***|**-3.921*"**|**-7.748"***|**-6.372**|_-14.911*-_|
||**(-2.818)**|**(-2.193)**|(-3.724)|**(4.730)**|**(-3.135)**|(-5.444)|(4.144)|(-2.491)|**(-3.283)**|
|Tradable Procucers|**0.0&4**||**0.363**|-0.148"*||**-0.171"**|**-0.599*****||**0.161**|
||**(0.352)**||**(1.131)**|**(-3.082)**||**(-2.567)**|**(-3.285)**||**(0.815)**|
|Access:<br>AccesstoInt'lBond<br>Markets|0.0263<br>**(0.253)**|**-0.083**<br>(-1.141)|**0.297**<br>**(0.813)**|**0.011**<br>**(0.297)**|**-0.069"**<br>**(-2.158)**|0.473"*<br>**(3.218)**|-0.020<br>**(-0.152)**|**-0.078**<br>**(-0.681)**|**-0.691"**<br>**(-2.369)**|
|AccesstoIntlEquity<br>Markets|**0.000***<br>**(1.916)**|**0.000**<br>**(0.956)**|**0.000"***<br>**(3.384)**|**0.101**<br>(1.453)|**0.109**<br>**(1.252)**|**0.203**<br>(1.044)|**0.000"**<br>(2.040)|**0.000"***<br>**(0.957)**|**0.000"'**<br>(4.079)|
|**FinancialLibaralization **|**andCrises:**|||||||||
|FinancialLiberalization|-0.20:2|**-0.530**|-0.349|**-0.137***|**0.011**|**-0.056**|**-0.059**|-0.141|**-0.127**|
||**(-1.302)**|**(-1.299)**|**(-1.615)**|**(-1.713)**|**(0.137)**|**(-0.330)**|**(-0.209)**|(-0.434)|**(-0.383)**|
|FinancialDevelopment|**0.035**|**0.052**|**0.081**|**0.114"**|**C.113"**|0.124|**-0.087"**|**-0.088"**|-0.004|
||(0.348)|(0.411)|**(0.755)**|**(2.117)**|**(2.373)**|(1.564)|**(-2.393)**|**(-1.898)**|**(-0.072)**|
|MexicanCrisis**- 1995**|**-0263**<br>(4.890)|**-0.133**<br>**(-0.899)**|-0.457<br>**(-0.968)**|0.040<br>**(0.790)**|**0.010**<br>(0.241)|0.121"<br>**(1.979)**|**0.173***<br>**(1.773)**|**0.082***<br>**(1.218)**|**-0.011**<br>**(-0.111)**|
|AsianCrisis**- 1997**|**0.752***<br>(1.705)|**0.600**<br>**(1.000)**|0.426<br>(0.743)|**0.059**<br>**(0.792)**|**0.071**<br>**(1.316)**|**0.125**<br>**(1.539)**|**0.507"***<br>**(3.126)**|**0.381**<br>**(3.195)**|**0.309"**<br>**(2.197)**|
|CountryEffects:||||||||||
|Argentina|-1:222"<br>(-5.450)||-1.483*"<br>(-3.684)|**-0.052**<br>**(-0.523)**||**-0.622"***<br>**(-3.225)**||||
|Brazil|**-1.:261****<br>**(-3.072)**||-1.714**<br>**(-2.776)**|-0.044<br>**(-0.558)**||**-0.701*'**<br>(-4.368)||||
|Mexico|**-0.705"**<br>(-2.401)||**-0.758**<br>(-1.214)|||||||
|Indonesia|**-0.223**||0.040||||0.643"||**0.535**|
||**(-1.331.)**||**(0.082)**||||**(2.130)**||(1.545)|
|South Korea|0.547||**0.106**||||1.499"*||**0.627"**|
||**(1.332)**||(0.145)||||**(5.578)**||**(2.591)**|
|Malaysia|-1.041*||**-1.530"**||||**0.000**||**-0.776"***|
||**(-1.824)**||(-2.024)||||(0.000)||**(-2.632)**|
|**C**|**3.169"***||4.183"*|1.450"*||2.464"*|**3.311"***||**3.577"***|
||**(7.407)**||**(6.291)**|**(13.519)**||**(8.856)**|**(7.792)**||**(4.881)**|
|Adjusted R-Squared|0.021|**0.131**|**0.016**|**0.215**|**0.572**|**0.156**|**0.175**|0.421|**0.137**|
|<br>FixedEffects<br>||**1.955****<br>|||**7.231"***<br>|||4.841"*<br>||
|Chi-Hausman<br>NumberofFirms<br>|**778**<br>|0.348<br>**778**<br>|**778**<br>|**230**<br>|**1.108**<br>**230**<br>|**230**<br>|**281**<br>|**0.932**<br>**281**<br>|**281**<br>|
|NumberofObservations<br>Robust standarderrors-Whitec|**5930**<br>orrectionforheter|**5930**<br>oskedasticty.B|4296<br>ase countryisThai|**1713**<br>land.T-stalisticsar|**1713**<br>einparenthesi|1210<br>s.|**2503**|**2503**|**2976**|
|<br>_Thibl"fiildl_|<br> _ih i_|<br>_if di_|<br>_fiil_|<br>|<br>_beraiti_|||||
|_evaraenancaeveop_<br>***,","***indicate**10,5,1,**percent|_ents te nterac_<br>levelof significanc|_tono omest_<br>e,respectively|_c nanca_develop|ent_andfinancial _|_zaon._|||||
# **Appendix Table VI: Panel Estimates for Long-Term Debt (Financial Development)** **_Dependent Variable: Long-Term Debt/Equity_**

|**Independent**<br>|PoolLatinAm<br>|ericaand**E**<br>|**astAsia**<br>|**Poo**<br>|**lLatinAmer**<br>|**ica**<br>|**Poo**<br>**L**|**lEastAsia**<br>**Wihi**|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|**Variables:**|**OLS**|**Within**|**IV**|**OLS**|**Within**|**IV**|**OS**|**tn**||
|**Firms'Characteristics:**||||||||||
|LogofNetFixedAssets|0.102"*<br>**(5.970)**|**0.011**<br>**(0.550)**|0.121*"<br>(5.043)|**0.050**<br>**(1.368)**|**0.010**<br>**(0.373)**|0.024<br>**(0.370)**|**0.089****<br>(4.923)|**-0.053"**<br>**(-1.315)**|**0.155****<br>**(6.313)**|
|Net FixedAssets/Total|-0.148*|**-0.061**|**-0.329"***|**0.017**|**-0.521**|**-0.006**|-0.141|**0.272**|**-0.520****|
|Assets|**(-1.927)**|(-0.497)|**(-2.686)**|**(0.106)**|**(-1.567)**|**(-0.026)**|**(-1.135)**|**(1.912)**|**(-3.976)**|
|Profits/TotalAssets|**-1.774"***|-1.483**|**-3.526"**|-1.349"*<br>|**-1.155*"**<br>|**-3.533*-**<br>|**-3.059"***<br>|-2.412<br>|-4.581*"<br>|
||**(-7.564)**|(-4.968)|**(-6.680)**|**(-6.101)**|(-4.430)|**(-3.513)**|**(-7.300)**|**(-5.599)**|**(-6.236)**|
|TradableProducers|**-0.288"***||**-0.253"***|**-0.075**||**-0.196**|-0.465"||**-0.279*"**|
||(-4.334)||**(-3.330)**|**(-0.768)**||**(-1.328)**|**(-3.379)**||**(-3.177)**|
|Access:||||||||||
|AccesstoInt'lBond|**0.313"***|**0.203"'**|0.514*"|**0.093**|**0.101"**|**0.328***|0.164|**0.137***|**0.160**|
|Markets|**(3.893)**|(4.560)|**(3.478)**|**(1.276)**|**(2.573)**|**(1.771)**|(1.465)|**(1.636)**|**(0.793)**|
|AccesstoInt'lEquity<br>|**0.000**<br>|**0.000**<br>|**0.000"**<br>|0.549"<br>|**0.055**<br>|**0.511**<br>|**0.000**<br>|**0.000"***<br>|**0.000"**<br>|
|Markets|**(1.111)**|**(0.665)**|**(2.206)**|(2.554)|**(0.516)**|(0.864)|**(1.206)**|**(0.805)**|**(2.371)**|
|FinancialLiberalizationa|ndCrises:|||||||||
|Financialliberalization|**-0.587"***|**-0.177**|-0.649*"|**-0.560"**|**-0.159**|-0.646|-0.405"|**-0.300**|**-0.556****|
||**(-3.673)**|**(-1.056)**|**(-2.722)**|**(-2191)**|(-0.734)|**(-1.327)**|(-2.644)|**(-1.737)**|**(-2.917)**|
|Financial Development|0.034"|0.022|0.047*|**0.225"**|0.222"|**0.316"***|_0.014_|**0.053"**|**0.037***|
||**(2.077)**|(1.430)|**(1.877)**|**(2.352)**|**(2.512)**|**(2.616)**|**(0.735)**|**(2.875)**|**(1.810)**|
|MexicanCrisis**- 1995**|**-0.005**|**0.025**|**-0.063**|**-0.032**|**-0.018**|**-0.067**|**0.061**|**0.038"**|**0.018**|
||(-0.174)|**(0.972)**|**(-1.605)**|**(-0.657)**|(-0.417)|(-0.947)|**(1.192)**|(0.894)|**(0.399)**|
|AsianCrisis**- 1997**|**0.477"***|**0.516*-**|0.374"|**0.151**|0.114|**0.188**|0.430'"|**0.333***|**0.337"'**|
||(4.350)|**(5.295)**|**(3.564)**|**(1.091)**|(0.964)|**(1.350)**|(3.248)|**(3.332)**|(2.934)|
|Country Effects:||||||||||
|Argentina|**-0.050**||-0.064|0.248||**0.131**||||
||<br>**(-0.639)**||<br>**(-0.501)**|<br>**(0.881)**||**(0.256)**||||
|Brazil|**-0.189"***<br>||-0.201"<br>|**-0.081**<br>||**-0.261**<br>||||
||(-2.941)||**(-2.160)**|(-0.429)||**(-0.798)**||||
|Mexico|-0.445"*<br>(-3.435)||**-0.572"***<br>**(-3.155)**|||||||
|Indonesia|**-0.168"***||**-0.125**||||0.042||**-0.178***|
||**(-2.901)**||**(-1.328)**||||**(0.216)**||(-1.745)|
|SouthKorea|**0.230***||0.043||||0.444"'||**-0.006**|
||**(1.831)**||**(0.252)**||||**(2.877)**||(-0.044)|
|Malaysia|-0.222"||**-0.233***||||**0.000**||**-0.011**|
||**(-2.536)**||(-1.744)||||**(0.000)**||**(-0.070)**|
|**C**|**1.091"**||**1.157"***|**0.810"**||1.412**|**0.965****||**0.832"**|
||<br>**(5.051)**||<br>**(3.521)**|<br>(3.344)||<br>(3.349)|<br>(3.464)||**(2.053)**|
|Adjusted R-Squared|**0.180**|0.424|0.164|0.043|0.425|0.024|0.241|0.485|0.211|
|FixedEffects<br>||4.311"*<br>"|||**5.927"**<br>|||5.401*"<br>**"**||
|Chi-Hausman<br>NumberofFirms<br>NbfObi|**778**<br>**930**|40.732<br>**778**<br>**930**|**778**<br>4296|**230**<br>**1713**|1.49<br>**230**<br>**1713**|**230**<br>1210|**281**<br>**203**|**6.774**<br>**281**<br>**203**|**281**<br>**2912**|
|umeroservatons<br>Robuststandarderrors-Whitec|**5**<br>orrectionforheter|**5**<br>oskedasticity.B|<br>asecountryisThail|<br>and. T-statisticsare|<br> inparenthesis.|<br>|**5**|**5**||
|Thevariable"financialdevelopm<br>**',,"**<br>indicate**10,5,1,**percentl|<br>ent"**is**the intera<br>evelof significanc|<br>ctionofdomesti<br>e,respectively|<br>cfinancialdevelopm|ent**and**financial li|beralization.|||||
Appendix Table VII: Panel Estimates for Maturity Structure (Financial Development) _Dependent Variable: Short-Term Debt/Total Debt_

|Independent<br>|Pool LatinAm<br>|ericaandE<br>|astAsia<br>|Poo<br>|lLatinAmer<br>|ica<br>**IV**|Poo<br>**OLS**|lEastAsia<br>Wihi|IV|
|---|---|---|---|---|---|---|---|---|---|
|Variables:|OLS|Within|**IV**|OLS|Within|||tn||
|Firms'Characteristics:||||||||||
|LogofNetFixedAssets|-0.042*"<br>**(-15.228)**|-0.021"<br>**(-6.672)**|**-0.038*-**<br>**(-8.367)**|**-0.030"**<br>**(-6.626)**|-0.014**<br>**(.3.063)**|-0.014<br>**(-1.390)**|**-0.035"***<br>**(-8.455)**|**-0.023"**<br>**(-3.671)**|-0.044"<br>**(-9.332)**|
|Net FixedAssets/Total|**-0.176"**|**-0.099"***|**-0.187"**|-0.314-"|**-0.227"***|-0.347"*|_-0.194"_|**-0.083"**|-0.147"|
|Assets|**(-11.081)**|**(-3.686)**|**(-7.964)**|**(-9.633)**|**(-3.719)**|**(-6.345)**|(-7.434)|(-2.417)|**(-5.557)**|
|Profits[TotalAssets|**0.193*-**<br>|**0.190"**<br>|**0.192**<br>|**0.113"**<br>|**0.190*"**<br>|**0.183**<br>|0.290"*<br>|**0.173***<br>|**0.286"**<br>|
||**(5.112)**|(4.585)|**(1.617)**|**(2.019)**|(2.940)|**(0.680)**|(4.814)|**(2.593)**|**(2.265)**|
|TradableProducers|**0.075-"**<br>||**0.075*-**<br>|**0.010**<br>||**0.018**<br>|0.046"<br>||**0.082-**<br>|
||(7.494)||**(6.296)**|**(0.309)**||(0.346)|**(2.810)**||(6.120)|
|Access:||||||||||
|AccesstoInt'lBond|**-0.**154"|**-0.091"***|**-0.312"***|**-0.179****<br>|**-0.095"**<br>|-0.420*-<br>|**-0.051"**<br>|**-0.035"**<br>|-0.234"*<br>|
|Markets|**(-8.916)**|**(-7.122)**|**(-7.901)**|**(-6.811)**|**(.4.557)**|**(-6.061)**|**(-2.592)**|**(-2.289)**|**(-4.300)**|
|AccesstoInt'lEquity<br>Markets|**0.000-'**<br>**(3.957)**|**0.000**<br>(0.045)|**0.000**<br>**(1.323)**|**-0.166*"**<br>**(-2.729)**|**-0.011**<br>(.0.248)|**0.029**<br>**(0.163)**|**0.000"**<br>(4.217)|**0.000"**<br>(-0.647)|**0.000**<br>**(1.355)**|
|Financial Liberalizationa|ndCrises:|||||||||
|Financialiberalization|0.122"<br>**(6.328)**|**0.062"***<br>**(3.273)**|**0.055"**<br>(2.121)|**0.136*"**<br>(3.554)|**0.071***<br>:1.842)|0.012<br>**(0.183)**|**0.137"**<br>**(4.817)**|**0.096"**<br>**(3.670)**|**0.136"**<br>**(4.389)**|
|Financial Development|**-0.014"**|**-0.013"***|**-0.007'**|-0.084"'|-0.054"|**-0.052**|-0.014"'|-0.014"*|**-0.015"**|
||(-4.398)|(4.015)|**(-1.658)**|(-3.249)|**(.2.281)**|**(-1.523)**|**(-2.669)**|(-2.645)|_(-2.942)_|
|MexicanCrisis**- 1995**|**-0.013**<br>**(-1.165)**|**-0.018"**<br>**(-2.399)**|**-0.015**<br>(-1.112)|0.002<br>(0.104)|**-0.018**<br>**(-0.952)**|**-0.010**<br>**(-0.359)**|**0.009**<br>(0.445)|0.002"<br>**(0.125)**|-0.021<br>**(-1.270)**|
|AsianCrisis**- 1997**|**-0.013**<br>**(-0.972)**|**-0.016***<br>(-1.649)|**-0.018**<br>**(-1.239)**|-0.046<br>(-1.470)|.040*<br>**(-1.659)**|**-0.057***<br>**(-1.676)**|-0.021<br>**(-0.851)**|**-0.009"**<br>**(-0.523)**|**-0.003**<br>**(-0.185)**|
|Country Effects:||||||||||
|<br>Argentina|-0.134'-<br>**(-7.668)**||**-0.095"***<br>**(-3.889)**|-0.174"*<br>(-4.021)||-0.044<br>(-0.549)||||
|Brazil|**-0.130"***<br>||**-0.133"***<br>|**-0.113"***<br>||**-0.052**<br>||||
||(-9.166)||**(-7.238)**|**(-3.319)**||**(-0.757)**||||
|Mexico|**0.061*-**<br>**(2.870)**||**0.073"**<br>**(2.510)**|||||||
|Indonesia|**-0.011**||0.004||||**-0.027**||0.029|
||**(-0.713)**||**(0.152)**||||(-0.704)||**(1.172)**|
|SouthKorea|-0.002||-0.042*||||**-0.001**||**0.016**|
||**(-0.133)**||**(-1.859)**||||**(-0.030)**||**(0.691)**|
|Malaysia|-0.045"*||**-0.078****||||**0.000**||**-0.037**|
||(-3.222)||**(-3.936)**||||**(0.000)**||**(-1.350)**|
|**C**|0.924"||**1.013"'**|**1.016"**||1.047"*|**0.855"**||**0.892*"**|
||**(29.553)**||**(23.132)**|**(18.226)**||**(9.115)**|(24.008)||(14.726)|
|Adjusted R-Squared|**0.230**|**0.600**|0.221|**0.217**|0.540|**0.178**|**0.279**|**0.621**|**0.278**|
|FixedEffects<br>||**8.236"***<br>**"***|||**6**201"*<br>|||**9.116"***<br>**"**||
|Chi-Hausman<br>NumberofFirms<br>|**778**<br>|**23.287**<br>**778**<br>|**778**<br>|**230**<br>|**3.791**<br>**230**<br>|**230**<br>|**281**<br>|**13.398**<br>**281**<br>|**281**<br>|
|NumberofObservations<br>|**5930**<br>|**5930**<br>|4296<br>|**1713**<br>|**1713**<br>|1210|**2503**|**2503**|**2976**|
|Robuststandarderrors-Whitec|orrection for hatero|skedasticity.B|asecountryisThail|and. T-statisticsare|inparenthesis.|||||
|The variable'financial developm<br>indicate**10,5.1,**percent|ent'isthe interac<br>evelofsignificanc|tion**of**domesti<br>e,respectively|cfinancialdevelopm|entandfinancial li|beralization.|||||
**Appendix Table VIII: Panel Estimates for Internal Financing (Financial Development)** _Dependent Variable: Retained Earnings/Total Debt_

|Independent<br> <br>Variables:|PoolLatin Am<br>**OLS**|ericaand Ea<br>**Within**|stAsia<br>**IV**|Pool<br>**OLS**|LatinAmeri<br>**Within**|ca<br>**IV**|Poo<br>**OLS**|lEastAsia<br>**Within**|**IV**|
|---|---|---|---|---|---|---|---|---|---|
|Firms'Characteristics:||||||||||
|<br>LogofNetFixedAssets|**-0.127**<br>**(-1.269)**|**-0.116**<br>**(-1.388)**|-0.004<br>**(-0.083)**|-1.547<br>(-1.200)|**-0.910***<br>**_(-1.690)_**|**9.607**<br>**(0.826)**|**-0.023"**<br>(-2.495)|-0.012-<br>**(-0.857)**|-0.040"<br>(-4.348)|
|NetFixedAssets/Total|-0.495|**0.232**|-1.345|0.224|**3.688***|**-23.761**|**-0.017**|**-0.087**|**0.003**|
|Assets|(-1.452)|**(1.003)**|(-1.342)|**(0.167)**|**(1.723)**|(-0.934)|(-0.249)|**(-0.799)**|**(0.078)**|
|Profits/TotalAssets|**5.658"**|2.110|14.283|**10.718"**|**1.792**|**12.467**|**2.739"***|2.840|**2.601"**|
||(3.416)|(1.418)|(1.456)|**(2.036)**|**(0.638)**|**(0.579)**|**(10.319)**|**(7.616)**|**(6.881)**|
|TradableProducers|0.148||0.054|**1.523**||**-0.279**|_0.049"'*_||**0.031"**|
||**(0.911)**||(0.482)|**(0.889)**||**(-0.088)**|(4.146)||**(2.260)**|
|Access:<br>AccesstoInt'lBond|-0.445|**0.196**|-2.460|**-0.687**|**0.728**|**-23.880**|**-0.051***|**-0.016"**<br>|**0.058**<br>|
|Markets|**(-1.052)**|**(1.239)**|**(-1.265)**|(-0.741)|(1.034)|**(-1.032)**|**(-2.273)**|(-1.496)|(1.495)|
|Access toInt'lEquity<br>Markets|**-0.055**<br>**(-0.090)**|**0.000**<br>**(-0.679)**|**0.000**<br>**(0.717)**|**-2.517**<br>**(-0.766)**|0.224<br>**(0.073)**|10.574<br>**(0.727)**|**-0.023**<br>(-0.436)|**0.000"***<br>**(-0.697)**|**0.000**<br>**(0.326)**|
|FinancialLiberalizationa<br>FinancialLiberalization|ndCrises:<br>**0.739**<br>**(1.356)**|**0.260**<br>**(1.185)**|0.922<br>**(1.095)**|**11.035**<br>(1.171)|4.164<br>(1.524)|**-50.799**<br>**(-0.760)**|**0.053**<br>(0.684)|**0.001'**<br>**(0.026)**|**0.128"**<br>**(2.362)**|
|FinancialDevelopment|**-0.126**<br>**(-1.063)**|**-0.027**<br>(-0.746)|-0.195<br>**(-0.972)**|**-0.632**<br>**(-0.327)**|**0.271**<br>**(0.157)**|**-18.930**<br>**(-0.939)**|**0.025"**<br>**(2.830)**|**0.028"**<br>**(2.763)**|0.002<br>(0.220)|
|MexicanCrisis**- 1995**|**1.569**<br>(1.064)|1.446<br>**(1.356)**|**1.787**<br>**(1.005)**|**7.557**<br>(1.047)|**6.253**<br>**(1.300)**|**1.788**<br>**(0.416)**|**-0.011**<br>**(-0.239)**|-0.014*<br>**(-0.270)**|**0.006**<br>**(0.227)**|
|AsianCrisis**- 1997**|0.021<br>**(0.098)**|**0.306**<br>**(0.953)**|**-0.072**<br>**(-0.237)**|**-2.109**<br>**(-1.173)**|**-0.065**<br>**(-0.038)**|-4.674<br>**(-1.297)**|-0.047*<br>**(-1.705)**|**-0.026"**<br>**(-0.887)**|**0.026**<br>**(0.730)**|
|**Country**Effects:<br>Argentina|3.224<br>(1.574)||4.985*<br>**(1.679)**|-0.430<br>**(-0.308)**||20.240<br>(0.834)||||
|Brazil|**0.160**<br>**(0.903)**||**0.850**<br>**(1.526)**|||||||
|Mexico|||**0.000**<br>**(0.000)**|||||||
|Indonesia|0.102<br>(0.554)||-0.920<br>**(-0.832)**||||0.304**'<br>(4.503)||**0.395"***<br>**(8.471)**|
|SouthKorea|0.964*||**0.931**||||**0.253-**||0.364*-|
||**(1.717)**||**(1.379)**||||(4.534)||(8.944)|
|Malaysia|**0.276***||0.944||||**0.000**||0.021|
||**(1.703)**||**(1.088)**||||**(0.000)**||(0.442)|
|**C**|-0.425*||**-1.618**|-10.040||**48.273**|**-0.065**||**-0.052**|
||<br>**(-1.685)**||<br>**(-1.051)**|<br>**(-1.128)**||<br>**(0.747)**|<br>**(-0.797)**||**(-0.502)**|
|AdjustedR-Squared|**0.001**|**0.150**|**0.010**|**0.015**|0.147|**-0.011**|**0.196**|0.425|**0.319**|
|FixedEffects<br>||**2.255"**<br>|||2.143"*<br>|||4.543*-<br>||
|Chi-Hausman<br>NumberofFirms<br>|744<br>|**0.01**<br>744<br>|744<br>|**165**<br>|**0.039**<br>**165**<br>|**165**<br>|**281**<br>|**0.385**<br>**281**<br>|**281**<br>|
|NumberofObservations<br>Robust standarderrors-Whitec|**5688**<br>orrectionforheter|**5813**<br>oskedasticity.B|4242<br>asecountryisThail|**1230**<br>and.T-statisticsare|**1251**<br> inparenthesis|**925**<br>.|**2503**|4456|**3186**|
|Thevariable"financialdevelopm<br>indicate10,5,1,percentl|<br>ent"isthe interac<br>evelofsignificanc|<br>tionofdomesti<br>e,respectively|<br>cfinancialdevelop|mentandfinancial li|beralization.|||||
Appendix Table IX.A: Bank-Based vs. Market-Based Systems **(OLS-** Financial Development)

|DependentVariables:<br>|Totaleb<br>|**u**ihort-erm<br>||Debt/Equity<br>|Long-TermD<br>|ebt/Equity<br>|Short-er<br>|mDetT.Dat<br>|Ret.a<br>|ng<br>|
|---|---|---|---|---|---|---|---|---|---|---|
|Independent Variables:|Bank|Market|Bank|Market|Bank|Market|Bank|Market|Bank|Market|
|Firms'Characteristics:|||||||||||
|LogofNet FixedAssets|**0.103*-**<br>|0.020<br>|0.020<br>|**-0.085-**|**0.083-**|**0.105-**|**-0.059-***|**-0.039"***|**-0.219**|-0.026*-|
||(3.224)|**(0.463)**|**(0.903)**|(-2.541)|_(4.435)_|**(5.199)**|(-5.624)|(-14.001)|**(-0.781)**|**(-5.068)**|
|NetFixedAssets/Total|**-0.813***|-1.282-|**-0.671"***|-1.152*"|-0.142|**-0.130**<br>|-0.062<br>|**-0.193-***<br>|**-4.385**<br>|0.064-<br>|
|Assets|**(-3.226)**|(-5.624)|**(-4.977)**|**(-5.901)**|(-1.004)|**(-1.530)**|(-1.304)|**(-11.297)**<br>|(-1.554)<br>|**(1.981)**|
|Profits/TotalAssets|**-2.00W"**<br>|-9.692'"<br>|-. 4"<br>|**-7.856'"**<br>|**-0.868"'**<br>|**-1.937-**|**0.29G-***|0.8"5|.38Z"|2.980^*-|
||(-5.124)|**(-3.153)**|**(-3.922)**|**(-2.672)**|(-4.962)|**(-6.665)**|**(3.532)**|**(4.078)**|(1.988)|**(17.275)**|
|Tradable Producers|**-0.038**|**-0.155**|**0.011**|0.151|-0.049|**-0.307'-**|_0.065_|0.078-*|**0.951**|**0.01***|
||**(-0.261)**|(-0.520)|**(0.150)**|_(0.549)_|**(-0.437)**|(-4.329)|**(1.599)**|**(7.490)**|**(0.569)**|**(1.730)**|
|Access:<br>|||||||||||
|AccesstoIntlBond|0.241*"|**0.310**|0.004|-0.054|**0.237"**|0.364*-|-0.140"'|**-0.157"***<br>|**-0.733**<br>|**0.018***<br>|
|Markets|**(2.616)**|**(1.352)**|**(0.062)**|(-0.348)|(3.649)|**(3.311)**|(-4.400)|**(-7.425)**|**(-0.755)**|**(1.656)**|
|Accessto IntlEquity<br>|**0.077**<br>|**0.000***<br>|**0.080**<br>|**0.000"**<br>|**-0.003**<br>|**0.000**<br>|**-0.099***<br>|**0.000"**<br>|**-3.906**<br>|**-0.000**<br>|
|Markets|(0.489)|**(1.692)**|**(0.979)**|**(2.130)**|**(-0.025)**|**(1.076)**|**(-1.736)**|**(3.939)**|**(-0.888)**|(-1.134)|
|FinancialLiberalizationa<br>|ndCrises:<br>||||**"**||"|**"***|||
|Financial Liberalization|**-0.538***|**-0.806*"**|**-0.199**|**-0.186**|**-0.339***|**-0.621***|0.248|**0.106**|**8.570**|**0.072**|
||**(-2.719)**|**(-2.798)**|(-1.496)|**(-0.979)**|**(-3.151)**|**(-3.490)**|**(3.826)**|**(5.313)**|**(0.812)**|**(1.397)**|
|Financial Development|**0.035**<br>|**0.077**<br>|-0.002<br>|0.043<br>|**0.038**<br>|**0.035"**<br>|**0.016**<br>|-0.012"<br>|**-5.885**<br>|**0.005**<br>|
||**(0.182)**|(0.644)|**(-0.015)**|**(0.376)**|**(0.386)**|**(2.006)**|**(0.303)**|**(-3.884)**|**(-0.756)**|(0.745)|
|MexicanCrisis**- 1995**|**0.137**|**-0.396**|0.121|**-0.385**|**0.015**|**-0.011**|**0.011**|-0.024*|**8.858**|**-0.006**|
||**(1.237)**|**(-0.993)**|(1.308)|**(-1.015)**|(0.304)|(-0.314)|(0.394)|**(-1.861)**|**(0.988)**|(-0.426)|
|AsianCrisis**-1997**|**0.263**<br>|**1.363"**<br>|**0.107**<br>|**0.833**<br>|**0.156**<br>|**0.531-**<br>|-0.022<br>|**-0.017**<br>|**-1.303**<br>|**0.023**<br>|
||**(1.238)**|**(2.309)**|**(1.082)**|**(1.531)**|**(0.952)**|(4.191)|(-0.584)|**(-1.113)**|**(-0.832)**|**(0.699)**|
|CountryEffects:|||||||||||
|Argentina|**-0.123**<br>||**-0.279***<br>||**_0.156_**<br>||_-0.182"*_<br>||**0.157**<br>||
||(-0.580)||(-1.792)||(1.445)||(-3.548)||(0.043)||
|Brazil||**-0.158**||-0.194||**0.036**||**-0.079"***||**0.132*"**|
|||<br>**(-0.631)**||<br>**(-0.862)**||<br>**(0.603)**||**(-6.391)**||**(5.761)**|
|Mexico||0.248||0.487||**-0.238**||**0.093"**|||
|||(0.514)||**(1.131)**||**(-1.601)**||**(3.781)**|||
|SouthKorea||2.094-||**1.656*-**||0.438"||**0.027**||**0.276*"**|
|||**(7.015)**||**(6.489)**||**(3.981)**||**(1.476)**||(9.143)|
|Thailand||1.330"||**1.101***||_0.228"_||_0.046"*_||**-0.019**|
|||**(2.069)**||**(1.819)**||**(2.533)**||(3.204)||**(0.611)**|
|**C**|**1.659'"**|**3.121*"**|**1.375"**|**2.213*"**|0.284|**0.908***|**0.765***|**0.889"***|**-10.163**|**-0.062**|
||**(3.001)**|**(8.874)**|**(3.560)**|**(7.875)**|**(1.018)**|(5.s89)|**(6.099)**|**(39.106)**|**(-0.780)**|**(-1.110)**|
|Adjusted R-Squared<br>FidEff|**0.116**|**0.039**|**0.111**|0.021|**0.090**|**0.178**|**0.203**|**0.237**|**0.007**|0.345|
|xeects<br>_Chi-Hausman_|||||||||||
|Number ofFirms<br>|140<br>|**638**<br>|140<br>|**638**<br>|140<br>|**638**<br>|140<br>|**638**<br>|**139**<br>|**605**<br>|
|NumberofObservatons<br>Robuststandard errors-White<br>co|**766**<br> <br>recton_for_heterosk|5164<br>dati1tBasecountr|**766**<br> isMalasia<br>T-statisic|5164<br>sare is areethesis|**766**<br>|5164|**766**|5164|**726**|4962|
|<br> <br>The variablefinncialdevelop|<br> <br>ment"<br>istheinteractl|y. y<br>on<br>ofdomenstia<br>inancial|y.<br> <br>development<br>and inan|p<br>etalliberalization.|.||||||

Bank-based Countries: Argentina and Indonesia. Market-based countries: Brazil. Malaysia, Meaxic, South Korea. and Thailand. Indicate 1,51, percent level of signlitcance, respectively
# **Appendix Table IX.B: Bank-Based vs. Market-Based Systems (Within- Financial Development)**

|**DependentVariables: **|**TotalDebt/Equit**|**y**|**Short-TermD **|**ebt/Equity**|**Long-TermDe**|**bt/Equity**|**Short-TermDe**|**btiT.Debt**|**Ret.Earnings/**|**T.Debt**|
|---|---|---|---|---|---|---|---|---|---|---|
|**Independent Variables**|**Bank**|**Market**|**Bank**|**Market**|**Bank**|**Market**|**Bank**|**Market**|**Bank**|**Market**|
|**Firms'Characteristics:**<br>|||||||||||
|Log**of**NetFixedAssets|**-0.173'**<br>|-0.049<br>|**-0.156***<br>|**-0.059**|**-0.017**|**0.010**|**-0.025**|-0.021"|-0.205|-0.020*-|
||**(-1.735)**|(-1.020)|**(-1.882)**|(-1.489)|(-0.438)|(0.497)|**(-1.311)**|**(-6.501)**|**(-0.653)**|(-2.604)|
|NetFixedAssets/Total|**0.630"**|-0.428|0.292|**-0.260**|**0.337"**|**-0.168**|**-0.086**|**-0.100"***|**-0.328**|0.120*|
|Assets|(2.457)|**(-0.987)**|**(1.599)**|**(-0.707)**|**(2.286)**|**(-1.150)**|_(-1.494)_|**(-3.273)**|(-0.220)|**(1.695)**|
|Profits/Total Assets|**-2.593*-**<br>|-8.904"<br>|-1.503"*<br>|**-7.376"**<br>|-1.090"<br>|-1.528"<br>|**0.091**|**0.207'**|-8.499|3.134'|
||**(-4.885)**|**_(-2.400)_**|**(-5.055)**|(-2.099)|**(-3.172)**|(4.469)|**(0.710)**|(4.691)|**(-0.539)**|**(16.925)**|
|Tradable Producers|||||||||||
|Access:|||||||||||
|AccesstoInt'lBond<br>|**0.088**<br>|0.122<br>|-0.024<br>|-0.122<br>|**0.112"**<br>|0.244*-<br>|**-0.053"**<br>|-0.104"*<br>|1.140<br>|**-0.023"**<br>|
|Markets|**(1.218)**|(0.904)|**(-0.528)**|**(-1.185)**|**(2.032)**|(4.295)|**(-2.106)**|**(-6.923)**|**(1.132)**|(-2.474)|
|Accesstolnt'lEquity<br>|**0.035**<br>|**0.000**<br>|**0.036**<br>|**0.000**<br>|**-0.001**<br>|**0.000**<br>|**-0.032**<br>|**0.000**<br>|-0.112<br>|**0.000**<br>|
|Markets|**(0.208)**|**(0.913)**|(0.467)|**(1.071)**|**(-0.007)**|**(0.662)**|**(-0.709)**|**(0.110)**|**(-0.031)**|**(-0.993)**|
|FinancialLiberalization|andCrises:||||||||||
|Financial Liberalization|**0.023**<br>|**-0.772**<br>|**0.090**<br>|**-0.602**|**-0.067**|**-0.170**|-0.014|**0.067"***|4.455|**_0.055_**|
||**(0.079)**|_(-1.451)_|**(0.377)**|(-1.294)|(-0.485)|**(-0.956)**|(-0.182)|(3.481)|**(0.707)**|**(1.179)**|
|Financial Development|**0.238***<br>|0.081<br>|**0.113**|0.061|**0.125**|0.020|0.004|**-0.013"**|**-5.236**|**0.011'**|
||**(1.705)**|(0.574)|(1.220)|(0.457)|**_(1.428)_**|(1.241)|**(0.098)**|(-4.168)|(-0.844)|(1.922)|
|Mexican Crisis**- 1995**|**0.106**<br>|**-0.173**|**0.082**|-0.194|0.024|0.022|**-0.003**|-0.022"|7.984|**-0.003**|
||(1.193)|**(-0.803)**|**(1.215)**|**(-0.966)**|(0.547)|**(0.699)**|**(-0.135)**|**(-2.610)**|**(1.193)**|**(-0.171)**|
|Asian Crisis**- 1997**|**0.269**<br>|**1.236**<br>|**0.119'**<br>|**0.650**<br>|**0.150**<br>|**0.586*"**<br>|**-0.033**|**-0.013**|**0.929**|_0.041_|
||**(1.556)**|(1.543)|(1.843)|**(0.866)**|**(1.016)**|**(5.106)**|(-1.044)|**(-1.296)**|(0.403)|**(1.387)**|
|Adjusted R-Squared<br>|0.451|0.160|**0.572**|**0.137**|**0.233**|0.431|**0.571**|**0.605**|**0.079**|0.476|
|Fixed Effects|||||||||||
|Chi-Hausman|**18.628"**|**0.365**|**7.846"**|**0.611**|**18.158"**|**68.031"'**|**2.8347**|**19.77"'**|3.443*|**1.7139**|
|_Number_ofFirms<br>|140<br>|**638**<br>|_140_<br>|**638**<br>|140<br>|**638**<br>|140<br>|**638**|**139**|**605**|
|NumberofObservations|**766**|5164|**766**|5164|**766**|5164|**766**|5164|**726**|4962|
|Robust standard errors-Whitec|orrectionforhetero|skedesticity.T-stati|sticsarein parenthes|is.|||||||

The variable "flnancial development* is the interaction **of** domestic financial development and financial liberalization.

> Bank-based countries: Argentina and Indonesia. Market-based countries: Brazil, Malaysia, Mexico, South Korea, and Thailand. Indicate **10,5,1,** percent level of significance, respectively
Appendix Table IX.C: Bank-Based vs. Market-Based Systems (IV- Financial Development)

|DependentVariablet<br>|<br>Total <br> <br>|**Debt/Equity**<br>|Shor|t-TermiDebtEQ|uit<br>Lon|g-TenrDebt**Equ**|**ity**<br>Sho|rt-lerm**DebtlT.D**|**elr**<br>Ret.|EarningsIT.Debt|
|---|---|---|---|---|---|---|---|---|---|---|
|IndependentVariabi|<br>Bank|Iarket|BanK|Market|ank|marKet|Bank|Market|an|<br>Market|
|Firms'Characteristic|s:||||||||||
|LogofNetFixedAsse|<br>**0.126***<br>|**-0.015**<br>|**0.007**|**-0.137****|**0.119***|0.122-|**-0.066****|-0.034**|**0.709**|**-0.057***|
||**(2.355)**|**(-0.206)**|**(0.179)**|**(-2.308)**|(4.305)|(4.393)|(-4.696)|(-7.161)|(1.219)|**(-5.638)**|
|NetFixed|-1.479*|1.795|**-0.878****|-1.504'*|**-0.601***|**-0.291***|**0.000**|-0.210**|**-12.638**|0.141"*|
|Assets/Total Assets|**(-3.479)**|**(-5.988)**|**(-3.774)**|**(-6.263)**|**(-2.181)**|**(-2.193)**|**(-0.005)**|**(-8.497)**|**(-1.508)**|**(3.126)**|
|Profits/TotalAssets|_-2.252*_<br>|**-**<br>|**-1.381***|**-**|**-0.870**|-4,305*|n**1Q**|O65|**3C.427**||
||**(-2.208)**|20.254"*|(-2.040)|15.949*|**(-1.532)**|**(-6.178)**|**(0.806)**|(1.194)|**(1.268)**|**(6.031)**|
|Tradable Producers|-0.214<br>|**0.312**<br>|**_-0.027_**<br>|**0.552**<br>|**-0188**<br>|_-0240-_|**0.090**|**0.079***|**0.650**|**0.043..**|
||**(-0.705)**|**(0.756)**|(-0.251)|(1.429)|**(-0.756)**|**(-2.922)**|(1.347)|**(6.265)**|**(0.277)**|**(3.010)**|
|Access:|||||||||||
|AccesstoInt'lBond|**1.576"***|0.247|**0.651****|**-0.209**|**0.925***|0.455*|**-0.370****|**-0.310"***|**-11,837**|**0.138****|
|Markets|(3.349)|**(0.383)**|**(2.185)**|**(-0.380)**|**(3.698)**|(2.340)|**(-3.557)**|**(-6.486)**|<br>(-1.219)|**(3.635)**|
|Accessto_Int_Equity<br>|-1.342<br>|**0.000*.**<br>|-0.420<br>|**0.000****|**-0.922**|**0.000"**|**0.207**|**0.000**|**10.117**|**0.000**|
|Markets|**(-1.258)**|**(2.880)**|**(-0.865)**|**(2.957)**|(-1.459)|**(2.267)**|(0.941)|**(1.319)**|**(0.996)**|**(0.923)**|
|FinancialLiberalizati|onandCrises|:|||||||||
|FinancialLiberalizatl|**-0.623**<br>|**-1.126****|-0.470|-0.427|**-0.153**|**-0.698****|**0.511**|0.045*|**37.237**|**0.091**|
||**(-0.612)**|**(-2.753)**|**(-0.505)**|(-1.614)|(-0.354)|**(-2.755)**|**(0.927)**|**(1.669)**|**(1.232)**|(1.643)|
|FinancialDevelopme|-0.029|**_0.177_**|**0.011**|0.120|-0.040|**0.057"**|**0.069**|**-0.007**|**-10.556**|**0.013**|
||**(-0.100)**|**(1.322)**|(0.047)|**(0.971)**|**(-0.270)**|**(2.099)**|**(0.853)**|(-1.470)|**(-0.959)**|(1.284)|
|MexicanCrisis**- 1995**|**0,219***|**-0.839**|**0,151**|**-0.738**|**0.068**|**-0.101***|**-0.011**|**-0.026***|**8.872**|**-0.001**|
||**(1.698)**|**(-1.229)**|**(1.569)**|**(-1.137)**|**(1.031)**|(-1.974)|**(-0.325)**|(-1.684)|**(0.989)**|**(-0.089)**|
|AsianCrisis**- 1997**|**0.299**<br>|**0.756**<br>|**0.127**<br>|**0.368**<br>|**0.172**<br>|**0.388****|-0.024|-0.022|-2.894|**0.019**|
||**(1.339)**|(0.994)|**(1.173)**|**(0.515)**|**(1.036)**|(3.194)|**(-0.623)**|(-1.412)|**(-1.356)**|**(0.528)**|
|**CountryPff-r**|||||||||||
|Argentina|**-0.090**<br>||**-0.296**<br>||**0.206**<br>||-0.225*||**0.312**||
||**(-0.267)**||**(-1.101)**||**(1.231)**||**(-1.988)**||**(0.072)**||
|Brazil||**-2.055****||-1.829"*||-0.226*||**-0.126"-**||0.067|
|||(-2.945)||**(-2.791)**||**(-2.320)**||**(-6.728)**||**(1.829)**|
|Mexico||-1.242*||**-0.662**||**-0.580****||**0.056***|||
|||(-1,674)||**(-0.981)**||**(-3.006)**||(1.849)|||
|South Korea||0.047||**0.032**||**0.015**||**-0.060***||**0.389****|
|||**(0.055)**||(0.040)||**(0.080)**||**(-2.519)**||**(9.771)**|
|Malaysia||**-1.957****||**-1.697***||**-0.261***||-0.074"*||**-0077**|
|||**(-2.250)**||**(-2.087)**||**(-1.913)**||<br>**(-3.659)**||**.**<br>**(-1.532)**|
|**C**|2.042|**5.726***|2.169|4.503**|-0.128|**1.223****|**0.197**|**1.012***|**-72.973**|**0.093**|
||**(0.988)**|**(6.275)**|(1.159)|**(5.839)**|(-0.140)|**(3.638)**|**(0.169)**|**(22.868)**|**(-1.267)**|**(0.868)**|
|AdjustedR-Squared<br>|**0.050**|**0.029**|0.048|**0.016**|0.054|**0.158**|0.211|0.221|-0.002|**0.338**|
|FixedEffects|||||||||||
|Chi-Hausman|||||||||||
|NumberofFirms<br>Number**of**Observaltc|140<br>497|**638**<br>**3799**|140<br>497|**638**<br>|140<br>|**638**<br>|140<br>|**638**<br>|**139**<br>|**605**<br>|
|<br>RobuSt<br>standard<br>esrnwWhit<br>c|<br>e<br>ecstteforbeteros|<br>ledanciy.Basem|<br>nyishailand.|**3799**<br>Tssarenparen,s|_497_<br>ss.|**_3799_**|_497_|**3799**|**610**|**3732**|
|Thevard 'llnancial<br>deelopm<br> <br>|Untthenterac<br> <br> <br> <br>|tio domesic<br>finan<br>|ddeal<br>spoetan<br>|d1inanialieralial<br>|on.||||||
|Bank-basd<br>conteis:Argenti|na<br>and Indonasi.<br>Ma|rket-bas cmtee:|Brazl,**Malaysia**<br>**Me**|**.**<br>**oo.**South<br>Koiae.an|dThaland.||||||

> ***."."*** Indicate **10.5.1.** perceit levl **of** signicoanca, respecvely
4 s 1
# **Policy Research Working Paper Series**

|Tifle|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|
|WPS2302**Why**Libera izationAloneHasNot<br>ImprovedAgriculturalProductivity<br>inZambia:TheRoleofAsset<br>OwnershipandWorking Capital<br>Constraints|KlausDeininger<br>PedroOlinto|March2000|M.Fernandez<br>**33766**|
|WPS2303MalariaandGrowth|F.Desmond McCarthy<br>HolgerWolf<br>Yi**Wu**|March2000|H.Sladovich<br>**37698**|
|WPS2304 DisinflationandtheSupplySide|Pierre-RichardAgenor<br>Lodovico Pizzati|March2000|T.Loftus<br>**36317**|
|WPS2305TheImpactofBanking Criseson<br>MoneyDemandandPriceStability|MariaSoledadMartinez<br>Peria|March2000|**A.**Yaptemco<br>**31823**|
|WPS2306International Contagion:Implications<br>forPolicy|Roberto Chang<br>GiovanniMajnoni|March2000|**E.**Mekhova<br>**85984**|
|**WPS2307**SLrveyingSurveysandQuestioning<br>Questions:LearningfromWorldBank<br>Experience|FrancescaRacanatini<br> Scott**J.**Wallsten<br>Lixin ColinXu|March2000|P.Sintim-Aboagye<br>37644|
|**WPS2308**HowSmallShouldanEconomy's<br>FiscalDeficitBe?**A**Monetary<br>ProgrammingApproach|PaulBeckerman|March2000|H.Vargas<br>**38546**|
|WPS2309 WhatDrives Private Savingaround<br>theWorld?|NormanLoayza<br>KlausSchmidt-Hebbel<br>LuisServen|March2000|**E.**Khine<br>**37471**|
|WPS2310HowPoliticsandInstitutionsAffect<br>PensionReforminThree<br>PostcommunistCountries|Mitchell**A.**Orenstein|March2000|M.Leenerts<br>84264|
|WPS2311The Buenos Aires WaterConcession|LorenaAlcazar<br>Manuel**A.**Abdala<br>MaryM.Shirley|April2000|P.Sintim-Aboagye<br>**38526**|
|WPS2312 MeasuringGovernance,Corruption,<br>andStateCapture:How Firmsand<br>Bureaucrats Shape theBusiness<br>EnvironmentinTransitionEconomies|Joel**S.**Hellman<br>Geraint Jones<br>DanielKaufmann<br>MarkSchankerman|April2000|**D.**Bouvet<br>**35818**|
|WPS2313HowInterestRatesChanged under<br>FinancialLiberalization:**A**Cross-<br>CountryReview|PatrickHonohan|April2000|**A.**Yaptenco<br>**31823**|
# **Policy Research Working Paper Series**

|**Title**|**Author**|**Date**|**Contact**<br>**forpaper**|
|---|---|---|---|
|WPS2314TechnologicalLeadershipand<br>ForeignInvestors'Choiceof<br>EntryMode|BeataK.Smarzynska|April2000|L.Tabada<br>**36896**|
|WPS2315InvestmentinNatural GasPipelines<br>intheSouthern ConeofLatinAmerica|AlejandroJadresic|April2000|M.Salehi<br>**37157**|
|WPS2316DistrubutionalOutcomesofa<br>Decentralized WelfareProgram|EmanuelaGalasso<br>MartinRavallion|April 2000|P.Sader<br>33902|
|**WPS2317**TradeNegotiationsinthe Presenceof<br>NetworkExternalities|KeikoKubota|April2000|L.Tabada<br>**36896**|
|**WPS2318**RegulatoryReform,Competition,<br>andInnovation:**A**CaseStudyofthe<br>MexicanRoadFreignIndustry|Mark**A.**Dutz<br>AydinHayri<br>Pablolbarra|April2000|H. Sladovich<br>37698|
|WPS2319ExternalitiesandProduction<br>Efficiency|Gunnar**S.**Eskeland|April2000|H.Sladovich<br>**37698**|
|WPS2320Does MoreIntenseCompetitionLead<br>to Higher Growth?|Mark**A.**Dutz<br>AydinHayri|April2000|H.Sladovich<br>37698|
|WPS2321AlgorithmsforPurchasing**AIDS**<br>Vaccines|David Bishai<br>MariaK.Lin<br>**C.**W.B.Kiyonga|April2000|P.Sader<br>33902|
|WPS2322Self-TargetedSubsidies:The<br>DistributionalImpactof theEgyptian<br>FoodSubsidySystem|RichardH.Adams, Jr.|April2000|M.Coleridge-Taylor<br>33704|