Credit Market Freedom and Corporate Decisions

Alfonsina Iona, Andrea Calef, Ifigenia Georgiou

    Research output: Contribution to journalArticlepeer-review

    Abstract

    In this paper, we investigate whether and to what extent credit market freedom affects a firm’s target level of investment, cash holdings, and leverage. To do so, we generalize the standard empirical models, commonly used in the finance literature to estimate those targets, in order to incorporate credit market freedom into the set of regressors. We estimate three augmented models on a large and heterogeneous sample of North American nonfinancial firms over the period 2000–2019. Our empirical results suggest that greater credit market freedom is associated with a healthier corporate capital structure, higher financial flexibility, and a friendlier investment environment. Our paper contributes to both economic freedom and finance literatures by investigating an unexplored issue in economics and corporate finance research. In addition, it informs policymakers that promoting financial reforms that increase credit market freedom can boost a country’s economic growth.

    Original languageEnglish
    Article number1670
    JournalMathematics
    Volume11
    Issue number7
    DOIs
    Publication statusPublished - Apr 2023

    Keywords

    • capital structure
    • corporate decisions
    • economic freedom

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