Abstract
We develop an equilibrium model to understand how the efficiency of capital allocation depends on outside investor protection and the external financing needs of firms. We show that when capital allocation is constrained by poor investor protection, an increase in firms' external financing needs may improve allocative efficiency by fostering the reallocation of capital from low to high productivity projects. We also find novel empirical support for this prediction.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 133-164 |
| Number of pages | 32 |
| Journal | Journal of Financial Economics |
| Volume | 75 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jan 2005 |
| Externally published | Yes |
Keywords
- Capital reallocation
- External finance
- Financial development
- Invetor protection
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management
Fingerprint
Dive into the research topics of 'The effect of external finance on the equilibrium allocation of capital'. Together they form a unique fingerprint.Prizes
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Jensen Prize - Second Place
Almeida, H. (Recipient) & Wolfenzon, D. (Recipient), 2005
Prize: Prize/Award