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Do capital markets in developed countries give their corporations a big edge over their rivals in emerging markets when it comes to accessing finance? A com- prehensive new study attempts to shed light on this question.
Alexander Vadilyev PhD candidate, UNSW, CMCRC ResearcherKeywords: Capital markets, market quality   Alexander is a Research Associate at the Capital Markets CRC. His current research interests include market design, corporate finance and the development of financial markets. Vadilyev has recently been seconded to the ASX to work in the Financial Mar- kets Research Centre, which was established by the CMCRC. He is committed to producing research which effectively balances practical value and academic excellence.
Global Financial Management and Financial Constraints, a study by researcher Alexander Vadilyev and research leader Professor Fariborz Moshirian, suggests that over the last two decades capital markets have matured to such an extent in the developed world that it is easier for firms to get access to money than ever before. Vadilyev’s study is unique in its scope; data from over 40 developed and emerging markets were included in the cross country analysis (most previous studies have only looked at US data). Using the CMCRC’s supercomputing facilities, vast volumes of data were cleaned, crunched and formatted so the information could be effectively analysed. The study identifies the key factors that assist major companies to borrow or raise money through capital markets at lower cost and faster speed. These factors include stock market development, improved financial openness of capital markets and credit development. The study finds that financial constraints have significantly declined and almost disappeared in developed markets. This is attributed to the maturity of capital mar- kets in the advanced economies and better access for firms to external financing. It was noted that during the GFC years the factors that could contribute to financial constraints and financial distress halted their decline and did not revert back to their pre GFC trend until 2010. This suggests that developed markets have ridden through the effects of the GFC. In marked contrast, firms in emerging markets face significant challenges when raising funds, largely due to their relatively underdeveloped capital markets. Dur- ing the GFC period, financial constraints for firms in emerging markets increased to 1990s levels, making it much harder for firms to gain access to money. To put this into perspective, firms in developed markets have almost twice the amount of debt and equity financing as do their rivals in emerging markets.
Author(s): Alexander Vadilyev