Social and Behavioral Sciences Commons^™

Suppliers, Investors, And Equity Market Liberalizations, Martin Strieborny

Martin Strieborny

Allowing foreign investors to acquire equity stakes in domestic firms stimulates the real economy by promoting frictionless relationships between buyers and suppliers of intermediate goods. I combine insights from research on financial liberalization and relationship-specific investment to derive this hypothesis and then use a difference-in-difference empirical framework to test it. Results from panel-data and event-study estimations confirm that equity market liberalizations boost output growth particularly in suppliers-dependent industries that require a high share of specialized inputs in their production process. Financial openness can thus facilitate smooth interactions between firms and an important corporate stakeholder - suppliers of crucial production inputs.