POLICY RE SEARCH WORKING IPAPER   2323
Globalization  and  Firms"                                              Debt-equity ratios do not tend
to increase after financial
Financing   Choices                                                     liberaiization, but there is a
shift from long-term to short-
Evidence  firom   Emerging  Econom.-nies                                term debt. Globalization has
uneven effects fo- firms with
and without access to
Sergio Scbmukler                                                       international capital markets.
Esteban Vesperoni                                                       Countries with deeper
domestic financial mar-kets are
less affected by financial
liberalization.
The WVorld Bank
Development Research Group
Macroeconomics and Growth                                                        U
April 2000



I POLICY RESEARCH WORKING PAPER 2323
Summary findings
Schmukler and Vesperoni investigate whether integration         On the other hand, domestic firms that actually
with global markets affects the financing choices of firms    participate in international markets get better financing
from East Asia and Latin America. Using firm-level data       opportunities and extend their debt maturity.
for the 1980s and 1990s, they study how leverage ratios,        Moreover, firms in economies with deeper dornestic
the structure of debt maturity, and sources of financing      financial systems are affected less by financial
change when economies are liberalized and when firms          liberalization.
gain access to international equity and bond markets.           Finally, they show that leverage ratios increase during
The evidence shows that integration with world              times of crisis.
financial markets has uneven effects.                            In an appendix, they analyze the previously unstudied
On the one hand, debt maturity for the average firm         case of Argentina, which experienced sharp financial
shortens when countries undertake financial                   liberalization and was hit hard by all recent global crises.
liberalization.
This paper -a product of Macroeconomics and Growth, Development 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 tI-ce World
Bank, 1818 H Street NW, Washington, DC 20433. Please contact Emily Khine, room MC3 -341, telephone 202-473-7471,
fax 202-522-3518, email address kkhine@oworldbank.org. Policy Research Working Papers are also posted on the Web at
www.worldbank.org/research/workingpapers. The authors may be contacted at sschmukler@worldbank.org  or
verperontiwam.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 abouit
develop,nent issues. An objective of the series is toget the findings outtquickly, even if the presentations are less than fully polished. The
papers carry the names of the authors and should be 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 W/orld Bank, its Executive Directors, or the
countries they represent.                                                       _
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 of Maryland, College Park
JEL Classification Codes: F3, 01, G3
Keywords: emerging markets, financing choices, finanoial integration, financial
liberalization, financial structure, globalization, international financial markets
0 We are grateful to Stijn Claessens, Asli Demirgul~-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
Developmenf 'and at the World Bank Latin American Brown Bag Lunch. We thank Simon Altkom 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 gratefiully thank Rina Bonfield, Federico Guexrero, Cicilia Harun, Emir Keye, and Jon
Tong for excellent research assistance. The findings, interpretttions, 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: sschmukler(a i.ldbankorg and vesperona).wam.umd.edu






I. Introductionr
The late 1,980s and 1990s witnessed unprecedented developments in the financial
sector of emerging economies. Emerging markets became more open and integrated with
the rest oif 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 govermnents or to the private sector throughl the btanking 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 r elationship between firms' financing
choices anid global financial integration. We focus on emrierging 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
I



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 eamings over total liabilities. ' To study the effects of fmancial
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. Demirgiuc-Kunt and Maksimovic (1994) and Aivazian, Booth, Demirgiiu-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 tfhis 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 baik-based vis-a-vis market-based
models of organization.2 The evaluation of managers and firms performnance on the part of
lenders niay be an expensive activity. Therefore, there is a trade-off between liquidity of
financial instruments and control of debtors. While rnarket-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 withl more tangible assets.4 Our data set
enables us to study whether firns' financing choices are dlifferent in countries with bank-
based and market-based systems. Also, we can stucly 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, bank-
based vs. market-based fnancial systems.
See Demirgi%q-Kunt and Levine (1997).
Financia]. securities, which are quickly and cheaply exc&langed in the market, can save resources
allocated to exercise some control over corporations. See Bhide (1993).
4The 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 aggregate-
level 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 fmancing 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 ind 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, follovved by financial liberalization and crises. Data on firms' balance sheets
come fram two sources, the corporate finance database of the Intemational Finance
Corporation (]FC) and WorldScope. IFC has comple:e dataL 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 post-
liberalization period (mainly the 1990s), we combine data from both sources. Our sample
comprises annual balance sheet data of publicly traded firms, from  1980 to 1999.5
Previous worlk oni corporate finance, notably Demirigu9-Kunt and Maksimovic (1995 and
1998) and Aivazian, Booth, Demirguc-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.6
To measure fmancial 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 Schmukler (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
5Appendix 2 presents, for each country, the number of firms and time periods covered in the sample.
6Data 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 firns 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.
7 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 arnount 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 finan,cial liberalization.
To test whether financial choices for firms in bank-based and market-based
economies are different, we use the criteria in Demirgiiu-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, K.orea, Malaysia and Thailand are market-based financial systems.
Il.b Stylized Facts
Before proceeding with the econometric analysis, we present a general overview
on the belhavior 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.
Fiigure 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 finns 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 surpiising, fact, given that one would expect e uity 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 batik-based systems promote long-te,rm
relationships between lenders and borrowers. Two possible explanations for this finding
are as follows. Ale explanation is that greater liquidity does not necessarily imply short-
term financial instruments. In fact, market-based syste,ms 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 iimply
that long-term lending relationships entail long-term financial instruments, because
creditors imight 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-termv 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 de'bt 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.8
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
8 Instead of retained earnings/total debt, the ideal variable to measure retained earnings would be retained
earnings/total investment. However, the lack of fmns' 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 firrms' 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
opportunitLies 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 othervise.9 T'he 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 factois 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 fmanciatl liberalization created by Kaminsky
and Schmukler (1999). The index is an average of several indicators of financial
liberalization iin the economy. These indicators include liberalization of the domestic
financial sector, as well as removals of restrictions o:n 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:
9Notice 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 1990.1'
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 Demirguii-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 fmancial 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, Demirgiuc-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.orglresearch/interest/confs/past/papersfeb3-4/agenda.htr
12



We run five different panel regressions for each dependent variable. The first
regression uses pooled data for the seven emerging economies 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 conttast between bank-based and market-
based economies.
The resultss are displayed in Tables I-VI. We report results from pooled ordinary
least squares anid within estimators (or fixed effects), with robust standard errors. In this
way, we are able to compare our results with those frcm the existing literature in corporate
finance. Since within estimations control for fim 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 eflects. Pooled OLS estimates do
not contain fmn slpecific effects. Then, we are able tc 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.2
The OLS models estimated are:
Yi,,, =n,+    + 3X1,,+ y'AC±O'    +)i,
°)i,,c, - N(Oa2Jli'Ct)
such that i   ,..,V c = ,.,C, and t = 1,..., T.
YiN,. represents the five variables defined above, which measure the firms'
financing choices. The sub-indexes i, c, and t stand for finn, country, and time respectively.
13



X;,a, stands for the three variables capturing firm specific characteristics. Aj,, denotes
access to international financial markets. Mc, 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:
Yi,c,  f,c +3'Xi,c., + y' Ai,, + O'M, , + £C,
E-i",t  N(O, afzc,)
such thatfi,c 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 frm. 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
instrumernted, except the variable capturing access to intermntional bond markets. This latter
variable might be endogenous, since it may be easier for firms with a certain fnancial
structure to issue foreign bonds. Past values of this dummy variable are not suitable
instruments because of its low correlation with cointemporaneous 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 1 if two conditions
are fulfilled. First, markets are "open" for the country, in the sense that at least one firm
from that couintry issues bonds in international capital markets during that period. Second,
the firm is an "international' firm, in the sense that the firrn 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 conrelated with the firmn's access to intenational bond markets."3
lII. 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 oni 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 firrm characteristics. Second, we analyze how access to international financial
1 Future r esearch 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.
III.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 long-
term debt markets and equity markets. These results are consistent with Demirgiiu-Kunt and
Maksimovic (1995) and Aivazian, Booth, Demirgiuc-Kunt, and Maksimnovic (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, Demirgiiu-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 largeT fixed assets
need a longer imaturity structure.
The variable profits over total assets is statistically significant in most OLS,
within, anid 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 aie 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 resulls; they have not been tested before in
the literature. Following Diamond (199la), one can argue that tradable producers are less
vulnerable to domestic financial crises.4 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 Teplacing 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.
14 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 intemational 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 intemational 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.
Il[.c Finaincial Liberalization and Crises
The different estimations show that financial l]iberalization 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.
Tlhe 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 haLve 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."6 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 thLe financial sector and by strong incentives to borrow abroad, due to high
domestic funding costs.17 The prospect of diminishiing returns, after a long process of
growth without productivity gains, may induce intemational lenders to be cautious in taking
long-run positions.'8 This may increase long-term risk premiums and create incentives for
firms to bias their mnaturity 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. On 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
16 In fact, large cuLrrent account deficits in emerging economies are usually interpreted as evidence of new
investrnents in projecits with high-expected returns.
17 See, for example, WVorld 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 long-
term borrowing."9
Financial crises have a significant effect on leverage ratios. Long-term and short-
term debt-equity ratios increase in all crises.20 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.
I.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 fnancial 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 fnancial markets, the degree of domestic
financial development should not have a significant effect.
We test whether domestic financial developrnent rnatters by using the indicator
constructed by Deimirgii9-Kunt and Levine (1999). As mentioned before, this indicator is
the sum of the stock market capitalization and lialilities 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 fmancial 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 domiestic financial systems are less affected by liberalization processes. In
general, the interaction variable has the opposite sign of the liberalization variable. In
other worcls, thie negative correlation between liberalization and leverage is stronger in
less develcped 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 Demirgiiu-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 affiect 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-t;erm debt and long-term debt vary with size. In bank-based systems, just long-
term debt and debt-equity ratios increase with size.
Assuming that larger firms are also the more esiablishLed ones, one could argue that,
in market-based systems, these firms issue less risky securilties. 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 lirms have a lower level of internal
financing. In bank-based systems, one could argue that stage financing has a role. As firms
grow and gret 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-bank-
based and rmarket-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. Howevei,
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 oni leverage levels, debt maturity, and the choice between external and intemal
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, wvhich m[ostly covers the 1980s. In other words, larger firms and firms with more
tangible assets extend their debt maturity. Higher proilts 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 frmns 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 eauitv 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.
a     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 fiims 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 (leveloped 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.
*     ease 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 coultries, 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, vve 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 finns 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 fcir finms 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 arkd without access to international capital markets. Third, it seems imnportant
to understand whalt 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 dlirection.
31



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Appendix 1: T'he Case of Argentina
This appen,dix studies in detail the case of Argentinia This case is worth studying
due to a numlber 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 firmns 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
corporatioins 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 firmis 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 finns 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.
Firns 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 short-
term 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.2' 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.22 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.23
Access to Inte,rnational Markets:
There is some evidence that access to international bond markets increases long-
term 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 international banks have probably not
provided credit under conditions similar to the ones offered by international capital
markets. Therefore, firms still benefit from  accessilg 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 MexicaL crisis shortens the maturity structure
of debt in Argentina, in contrast with the experience ol other Latin American countries.
22 See, for emnple, Eleymann and Leijonhufvud (1995) and Neumeyer (1998).
23 Note thal; 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                Number of Firms
Argentina                 1988-1999                     73
Brazil                  1985-1998                     264
Indonesia                 1989-1998                     185
Malaysia                  1983-1998                    561
Mexico                   1981-1998                    202
South Korea                1980-1998                    410
Thailand                 1980-1999                     278
38



Appendix 3: ILiterature 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 deciisions. The assumptions made by NModigliani 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.24 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.25 This
separation may induce discretionary behavior on the part of managers, which is difficult to
control by shareholders/owners. Professional marLagers 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.
25 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  (199la, 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 tc,
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.26 Finally, another firm
characteristic nol suggested in the literature on agency cost is size. As argued by
Demirgiig-Kunt and Maksimovic (1994), firm size mrray be relevant for financial structure,
because access to financial markets may be a functior. of size.
The emnpirical 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, Demirgiiu-Kunt, and
Maksimovic (19599) use a firm-level database to study whether the capital structure theory
is relevant for developing countries with different institutional characteristics.2" 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
developintg courntries. 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.28 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).
26 See also Capiio and Demirgiuc-Kunt (1997).
27 There exist sonae case studies. Jaramillo and Schiani: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.
2B 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, Demirgiuc-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.
Demirgiuq-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 vis-
a-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 betwAeen liquidity of financial instrutrLents 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 mrkarkets. This liquidity allows
bondholders to 'penalize' bad management. Whereas, unsecured business loans require
banks to control t;he activities and management of borToweis, 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.
Slage 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 that, in many instances, liberalization policies take place
without an adequate regulatory and supervisory framewvork.
45



Figure I: Access to Bond Markets
Debt-Equity Ratios *                                     Short-Term Debt/Equity *
5                                                         3.0-
85 8687 8889 90 9192 939495 96 9798                         85 8687 8889 90 919293 9495 9697 98
Long-Term Debt/Equity *                                    Short-Term Debt/Equity *
2. ..
2.0                                                        0.70l
1.2                                                         0.
0.5                            l                             1W -0.
85 86 87 88 89 90 91 92 93 94 95 96 97 98                   85 86 87 88 89 90 91 92 93 94 95 96 97 98
Firmns that Issued Bonds in Foreign Markets
Firms that Did Not Issue Bonds in Foreign Markets
Source: IFC Corporate Finance Database and WordScope
* Ratios are averages across firma



]Figure II: Access to International Equity Markets
Debt-Equity Ratios*                                        Short-Term DebtlEquity*
3.5                                                           2.4
3.0                                                          2.0l
1993   19E94   1995   1996   1997   1998                     1993   11994   1995   1996   1997   1998
Long-Term DebtlEquity*                                       SJhort-Term Debt/Total Debt*
1.6                           01.67 
1.4-                                                         0.70I
2.0   *                             *         |      1.2-          11         | 0.65
0.60
1.0-
0.5&
0.8-
0.5a
0.6 _                                                        0A5.
0.4                                          ~~~~~~~~~~~~~~~0.4
93     94      95     96      97      98                     1993   1994   1995   1        1997   1
*  Finns thatlIssued Equity in Foreign Maikets
Fins that Did Notl ssue Equity in ForeignMarkets
Source: IFC. Corpoirate Finance Database and WorldSeope
* Ratios are averages across fInns



Figure III: Bank-Based vs. Market-Based Financial Systems
Debt-Equity Ratios*                                    Short-Term Debt/Equity*
3.5                                                        2.5
3.0-                                                       2.0
2.5.
1.5
2.0-
1.5.
1.0-
0.500
88 89  90  91  92  93  94 95  96 97  98                    88 89 90919293  94 95  96 97  98
Long-Term Debt/Equity*                                  Short-Term Debt/Total Debt*
1.2                                                       0.74
1.0-                                                      0.7
0.7
0.8.
0.68
0.6-~~~~~~~~~~~~~~~~~.
0.66
0.4-                                      ~~~~~~~~~~~~~~~~0.64
0.                                         ~~~~~~~~~~~~~~~~0.
88 89  90 91 92  93  94  95  96 97  98                     88 89  90  91 92  93 94 95  96 97  98
* Firms in Bank-Based System
Firms in Market-Based System
Source: IFC Corporate Financial Database and WorldScope
* Ratios are averages across fiums



Table 1: Panel Estirmites focr Debt-Equity Ratios
Dependent Variable: Total DebtiEquity
Independent                       Pool Latin Amarica and East Asia             Pool Latirn America                           Pool East Asia
Variables:                       O.S         Within          IV               OLS        Within            IV               OLS        Within             IV
omoSf NCehtaFiaxed Assts        0.045        0.051        0.001              0.035        -0.039       -0.077             0.077'        -0.077         0.072
(1.026)     (-0.955)      (0.022)            (0.725)      '-0.893)     (-0.984)            (1.981)      (-1.024)       (1.101)
Net Fixed Assets/Total      -1.100'-        -0.010     -1.717--           -0.749'         -0.635     -0.753--           -1.475'         -0.397      -1.999'-
Assets                       (-4.755)      (-0.033)      (-6.553)          (-3.444)     '-1.618)      (-2.241)           (-9.289)      (.1.379)      (-7.437)
Profits/Total Assets        4-.174-       -7.593"    -16.162-'            -2.702...    -' .955''    -7.921'.            -9.069"'    -6.847-'    -19.802-'
(-3.615)     (-2.648)     (-4.843)           (-8.387)     '-5.451)      (-4.522)           (-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:
Access to lntl Bond           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        0.00°°           0.719"          0.143        0.875              0.000         0.000        0.000'
Markets                       (1.424)       (1.018)      (1.664)            (3.082)      (0.827)       (1.160)            (1.437)      (0.969)       (1.763)
Financial Liberalization and Crises:
Financial Liberalization      0.884" -      0.499'        0.627              -0.349        0.295       -0.249           -0.847-'    40.752''          40.444
(-2.263)     (-1.961)     (-1.489)           (-0.972)      (0.820)      (-0.438)           (-3.797)     (-3.090)      (-1.466)
Mexican Crisis -1995           -0.238       40.071        0.497              0.088       0.127-         0.133              0.089       0.119"          0.016
(-0.911)     (-0.558)     (-1.097)            (1.305)      (2.166)       (1.245)           (1.205)       (2.066)       (0.122)
Asian Crisis- 1997           1.193"         1.176-         0.880             0.300'      0.261"        0.351'            0.744"       0.901-"        0.678"'
(2.9119)     (2.033)      (1.585)            (1.881)       (1.994)      (1.928)            (4.152)      (5.138)        (3.190)
Asian Crisis -1998            1.133:       1.293"          0.728            0.299-       ).234"       0.466-"              0.697        0.815-         0.096
(2.4110)     (3.281)      (1.470)            (2.426)       (2.614)      (2.642)            (1.544)      (1.870)        (0.368)
Country Effects:
Argentina                    -1.627-'                   -2.118-'             -0.080                     -0.837
(-3.074)                  (-2.990)           (-0.194)                   (-1.265)
Brazil                      -1.670-'                   -2.209"'              -0.183                   -1.011'
(-2.993)                  (-2.839)           (-0.678)                   (-2.239)
Indonesia                    -0.64S-                      -0.410                                                          -0.179                       0.233
(-2.045)                  (40.636)                                                         (-1.234)                     (0.729)
South Korea                     0.609                      0.070                                                         0.981--                     0.683-
(1.4'14)                  (0.098)                                                          (4.118)                     (2.230)
Malaysia                    -1.280-3                   -1.643"'                                                         -0.7386                      .0.539"
(-2.892)                  (-2.602)                                                         (-3.912)                    (-2.012)
Mexico                       1.455'--                   .1.631''
(-3.509)                  (-2.203)
c                            4.174-'                    5.088'             1.865"                     3.397"             4.153-                      3.863''
(10.8'77)                   (7.761)           (7.118)                    (6.655)            (7.957)                     (5.670)
Adjusted R-Squared              0.C40        0.157         0.030             0.072         0.478        0.051              0.251         0.497         0.201
Fixed Effects                              2.065''                                      6.824'                                        4.823"'
Chi-Hausman                                  0.095                                         1.291                                      14.661--
NumberofFirms                    7'99          799          799                238          238           238                527          527            527
Number of Observations          6137          6137         4442               1785          1785         1253               4074         4074           3003
RobUst standard e9M7 7W    =c`h n 7etenrskedastiiy. Thalland is the base country. fstaaitMcs are in paren; ;
- indicate 10,5,1, percentt level ot sigtiicance, respectively.
Instrurnental vanable eshmalion (Iv): Instrments are lagged explanatoryvardabes ot Finms Characteristics (excep.: the variable Tradable Producers), lagged values ot the variable Access
to Infl Equity Markets, and arn indicator ot each country's access to international bond marlets.



Table II: Panel Estimates for Short Term Debt
Dependent Variable: Short-Term DebtlEquity
Independent                       Pool Latin America and East Asia              Pool Latin America                           Pool East Asia
Variables:                       OLS        Within            IV              OLS         Within            IV              OLS         Within            IV
Firms' Characteristics:
Log of Net Fixed Assets       -0.064'       -0.066      -0.121"              4.0012      -0.029"     -0.092-'            -0.065-       -0.096         -0.084
(-1.695)    (-1.437)      (-2.254)           (-0.860)      (-2.196)     (-3.679)           (-2.267)     (-1.703)      1-1.528)
Net Fixed Assets/Total       -0.951''        0.034      -1.363-'          -0.744"'        -0.408'    40.788"'           -1.235"         -0.324      -1.462''
Assets                       (-4.682)       (0.133)      (-6.611)           (-4.362)     (-1.807)      (-5.571)         (-10.975)      (-1.600)      1-7.127)
Profts/Total Assets         -6.427.'.    -6.187"    -1 2.697-'            -1.397"       -0.967"'    -4.1 50'            -6.142-       -4.778'    -14.322'
(-3.016)     (-2.279)     (-4.024)           (-7.517)      (-5.034)     (-5.650)           (-5.801)      (-3.237)     1-3.269)
Tradable Producers              0.106                      0.388             40.107                     .0.090           -0.176'                       0.132
(0.460)                   (1.282)            (.1.419)                   (.0.977)          (-1.975)                    (0.674)
Access:
Acress to lnt'l Bond            0.061       -0.137         0.808              0.043       -0.053      0.611"               -0.131       -0.092      -D.740'
Markets                       (0.617)      (-1.133)      (1.471)            (0.850)      (-1.410)      (3.248)           (-1.391)      (-1.111)      (-2.422)
Access to Intl Equity0 0.000*                0.000         0.000             0.287'        0.049        OA97              0.000'         0.000       0.000'
Markets                       (1.724)       (1.134)      (1.567)            (1.704)       (0.543)      (1.029)            (1.942)       (1.061)      (2.038)
Financial Liberalization and Crises:
Financial Liberalization       -0.156      40.361'        -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)
Asian Crisis -1997            0.729'         0.656         0.468              0.122      0.127'          0.136           0.388"        0.4558         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:
Argentina                    -1.419-'                   -1.875.'             -0.140                  40.693'
(-2.829)                  (-2.783)           (-1.250)                   (-3.521)
Brazil                      -1.412'                     -1.960''             40.091                  -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)
South Korea                     0.448                      0.028                                                         0.824'                     0.639-'
(1.168)                   (0.043)                                                          (5.132)                     [2.866)
Malaysia                    -1.090"'                    -1.512"                                                         -0.7866                     0.695-
(-2.632)                   (-2.564)                                                        (-5.686)                   ( 3.315)
Mexico                       -0.881"                      .0.970
(-2.425)                   (-1.430)
c                            3.147"'                    4.100'             1.238-'                    2.273''            3.593-'                    3.428"
(10.916)                    (7.668)           (9.000)                    (8.900)            (8.968)                     !6.447)
Adjusted RF-quared              0.022        0.133         0.01               0.178         .bb6/       0.135              0.186         0.437          T
Fixed Effects                              1.980"'                                      7.431"                                        4.467"
Chi-Hausman                                  0.250                                         4.031                                        321'
Number of Firms                  799           799          799                238           238          238                526          526           526
NumberofObservations            6137       . 6137          4442               1785          1785         1253               4116         4116          3033
Robust standard errors-White correcton ior heteroskedaslicity. Thailand is the base oountry. T-stafistics are in parenthesis.
-,11,-1 indicate 10,5,1, percerd level of significance, respectively.
I-stnrmertal variable estinalion (9v): Instrunents ae lagged explanatory vanables ot Rmms Characteristics (except the vanrabe Tnadabe Produces), lagged values of the variade Acoess
to Intl Equity Markets. and an indicator of each country's access to irtemational bond marRets.



Table III: Panel Estimates for Long-Term Debt
Dependent Variable.: Lang-Term Debt/Equlty
Independent              ______  Pool Latin America and East Asia               Pool Latin  mica                              Pool East Asia
Variables:              -        d g         Within           IV               OLS        Vtithin           IV               OLS        Within           IV
Firms' Characteristics:
Log of Net Fixed Assets       0.1109'         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)            (7.587)      (0.376)       (7.125)
Net Fixed Assets/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)
Profts/Total Assets          -1.747"'    -1.406"        -3.465''           -1.305"'    -0.988"'    -3.771"'              -2.762"'     -1.939'''   -4.479''
(-'.784)     (-5.056)     (-7.017)           (-6.279)      ( ;.236)     (-3.769)           (-8.003)     (-3.167)     (-6.327)
Tradable Producers           -0.273"-'                  4.256'               -0.075                     -0.187           -0.324'-                  -0.311"'
(-4.228)                  (-3.484)           (4.865)                    (-1.411)           (-4.510)                  (-3.447)
Access:
Access to Int'l Bond          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)      ('1.538)      (2.538)           (2.774)       (3-334)      (0.683)
Access to Int'l Equty            0.00G        0.000        0.000             0.432'         0.094        0.377              0.000        0.000        0.000
Markets                        ((.990'      (0.800)       (1.635)            (2.464)      (0.872)       (0.840)           (0.691)       (0.817)      (1.190)
Financial Liberalization and Crises:
Financial Liberalization     4.528"'         4.138      4.491'"               0.329        0.123        4.290            4.401"         -0.199'    4.337"'
(-4.116)     (-1.010)     (-2.943)           (-1.126)      (t).432)     (-0.628)           (-3.832)      (-1.710)     (-2.703)
Mexican Crisis -1995            0.01 0        0.034        4.048              0.021        0.059'       -0.002              0.054       0.070'        0.038
(0.3561      (1.289)     (-1.270)            (0.502)       (1.667)     (-0.034)            (1.562)      (2.070)      (0.620)
Asian Crisis -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)
Asian Crisis -1998            0.474"'       0.437'       0.270'             0.167'       0.146'        0.225'              0.616'       0.652"       0.284-
(:2.7265     (2.769)      (3.415)            (2.812)       (.2.699)     (2.773)            (1.803)      (2.014)      (2.242)
Country Effects:
Argentina                    40.208-'                   4.243"'               0.060                     -0.143
(-3.616:1                 (-3.442)            (0.186)                   (-0.277)
Brazil                       -0.258-'                     4.259"             40.092                     -0.327
(-3.449)                  (-2.336)           (-0.449)                   (-0.984)
Indonesia                    -0.283"''                  4.238''                                                          -0.269'''                 -0.278''
(-4.100)                  (-2.728)                                                         (-3.572)                  (-3.188)
South Korea                      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'
(-2.561)                   (-1.225)                                                         (0.846)                   (1.870)
Mexico                       -0.574"'                   4.661"'
(-4.135)                  (-3.716)
C                             1.027'-                    0.988'"            0.627-'                    1.124"'            0.537"                       0.399
(5.184)                   (3.563)            (3.109)                    (3.232)            (2.188)                   (1.356)
Adjusted K-SquaFed              UI:T          t) 0.404     0.165              0.043        1.25          0.023              0.210        0.43Z        0.218
Fixed Effects                                4.12'                                       5.926-'                                       4.104'
Chi-Hausman                              474.090"'                                          3.380                                        8.598
Number of Firms                   7959          799          799                238          238           238                525          525          525
NumberofObservations             6137         6137          4442               1785         1785          1253              4018          4018         2971
Robust standard erors-Whlte cerrection fx hreteroskedastcity. Thailand Is the base counry. T-statiics are in parnahasis.
':---'-indicate 10,5,1. percent IEvel of snigniicanae, respectively.
Instrumenla variable estimaticn tV): Instruments; are lagged explnatory variables of Firms' Chaacteristics (except tihn variable Tradable Poducers), lagged values of the variable Access
to bntl 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                          Pool Latin America and East Asia                  Pool Latin America                                Pool East Asia
Variables:                          OLS         Within             IV                OLS          Within             IV                OLS          Within            IV
Firms' Characteristics:
Log of Net Fixed Assets        -0.042-'        0.020...       .037-'             -0.032-        ..0015           -0.012            -0.051--       -0.036V^     -4044-'
(-15.736)       (-6.762)      (-8.525)             (-6.491)      (-3.246)       (-1.198)           (-14.340)       (-6.297)      (-9.800)
Net Fixed Assets/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)      (-5.688)
ProfitslTotal Assets            0.187-         0.180-'         0.222'              0.131-       0.207             0.177             0.347'        0.256-         0.:311
(5.101)       (4.624)        (1.950)             (2.254)        (3.396)        (0.653)             (7.737)        (4.815)      '2.566)
Tradable Producers              0.076-                       0.076-                 0.047                         0.044             0.067-                      0.077
(7.714)                      (6.424)             (1.355)                       (0.830)             (6.160)                      1'5.688)
Access:
Acessto Int'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)       (46.084)            (-5.026)       (-4.362)      1:4.366)
Access to lnt'l Equity          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)
Financial Liberalization and Crises:
Financial Liberalization        0.084-          0.026'          0.030               0.054'         0.011         -0.062             0.079          0.045-        0.151-
(5.517)       (1.694)        (1.592)             (1.944)        (0.410)       (-1.295)              (4.525)       (2.619)       i2.455)
Mexican Criss- 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       40.017
(-1.378)      (-1.879)       (-1.685)            (-1.732)       (.1.855)       (-2.011)             (-0.957)      (-1.580)      (-1.031)
Asian Crisis -1998              -0.035"        4.0025'         -0.027              -0.059       40.072''       40.079"                -0.037       .0.033-        -0.033
(-2.061)      (-1.968)       (-1.526)             (-1.925)      (-3.139)       (-2.158)             (-1.491)      (-2.169)      (-1.257)
Country Effects:
Argentina                      40.092.                      40.072'"             -0.107-                          0.016
(-6.998)                     (-4.123)            (-2.a46)                      (0.214)
Brazil                         -0.118''                      -0.125...           -0.126-                         -0.036
(-8.592)                     (-6.947)            (-3.480)                      (-0.527)
Indonesia                          0.020                        0.016                                                               0.055                       0.060"'
(1.372)                      (0.758)                                                               (3.671)                      (2.973)
South Korea                        0.001                      -0.0456                                                                  0.023                      -0.007
(0.085)                     (-2.098)                                                               (1.266)                     (-0.328)
Malaysia                       -0.071 --0.093 ^                                                                                    -0.102-                     -.0.93-
(-5.580)                     (-5.246)                                                              (-6.006)                     (-4.345)
Mexico                          0.081 "'                     0.078-
(3.909)                      (2.850)
C                               0.952-                       1.030                1.024-                       1.077-               1.031'                      1.1268
(32.736)                     (26.115)            (17.423)                      (10.366)            (26.347)                     (21.419)
Adjusted R-Squared                0.228          U.6i1          0.218               0202           0.538          0.152               0.2zr          0.13os       B:7T
Fixed Effects                                  8.348-                                           6A438                                              9.327
Chi-Hausrnan                                 22.249-                                           39.422-                                           21.092-
Number of Firms                     799            799            799                 238            238            238                 526            526           526
Numberof Observations              6137           6137          4442                 1785           1785           1253                4116           4116          3033
Robust standard arars-WIlite correction tor heteroskedasicty. Thailand is the base coutry. T-stattics are in parenthesis.
indicate 10,5,1, percent level of sgnificance, respectvely.
Instrumental variable estimation (IV): instunients are lagged explanatory variables of Firms' Characteristics (except the vanable Tradable Producers), lagged values of tihe vanable Access
to Int'l Equity Markets, and an indicator ot each cointrys access to intemational bond markets.



Table V: Panel Esdmalles for Internal Financing
Dependent Variable: Retained Eamin gsiTotal Debt
Independent            - -         0Pool Latin America and East Asia        Pool Latin America                          Pool East Asia
Variables:                     OLS        Within           IV              OLS       VWithin           IV              OLS        Within          IV
Firnns' Characteristics:
Log of Net FixedAssets       .0.107        -0.105       0.021             -1.483      4.886    -1901.70            -0.027'-        0.001     0.041...
(.1.321)    (-1.434)      (0.365)          (-1.163)     (-1.467)     (-0.012)          (-3.814)      (0.062)     (-4.561)
Net Fixed Assets/Total        4.517        0.190        -1.383           40.096        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/Total Assets        5.442-         2.118       13.478           10.608''       1.957    3312.150            2.444-       2.482"'    2.471''
(3.683)     (1.439)      (1.468)           (2.148)      (0.703)      (0.012)          (12.969)      (8.703)     (6.705)
Tradable Producers             3.147                    0.041             1.439                   644.292           0.026B                    0.035'
(0.916)                  (0.381)           (0.882)                   (0.012)           (2.801)                   (2A51)
Access:
Access to Intl Bond           ..489        0.196        -2.522           -4A97         0.756    2654.600              40.008    .0.021-         0.056
Markets                     (-1.062)      (1.302)     (-1.265)          (-0.606)      (1.137)      (0.012)          (-0.590)     (.3.086)     (1.443)
Access to Intl Equity          D.000       0.000        0.000             -2.212        1.310     540.150             40.028       0.000        0.000
Markets                      (0.127)     (40.777)      (1.022)          (40.775)      (C.104)      (0.012)          (-0.732)     (-1.342)     (0.679)
Financial Liberalization and Crises:
Financial Liberalization      0.220'       0.132        0.046            10.339        L.222    13240.700           0.117-       0.085-      0.143-
(1.738)     (1.347)      (0.252)           (1.221)      (1.599)      (0.012)           (3.752)      (3.068)     (4.281)
Mexican Crisis -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)
Asian Crisis -1997            -0.093       0.284        -0.239            -1.623       3.056      685.088             0.023        0.018        0.025
(-0.541)     (0.963)     (-0.985)          (-1.037)      ((.036)      (0.012)           (0.750)      (0.603)     (0.724)
Asian Crisis - 1998          -0.062        0.458        40.340             .0.01       1.292      879.543             0.008        .0.011       0.011
(-0t.279)    (1.483)     (-0.904)          (-0.009)      (1.071)      (0.012)           (0.220)     (-0.328)     (0.283)
Country Effects:
Argentina                      3.605                    5.542             -0.319                .6029.750
('1.539)                 (1.589)          (-0.317)                   (-0.012)
Brazil                      0.287-                      1.035
(2.621)                  (14A00)
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)
-0.613                                 -12480.600                                      -0.067
(~~~~~-1.065)                                                                       (40.012)                                   (-0.742)
Adjusted R-Squared                         0.150                          0.015        01T                            0.229        0.424
Fixed Effects                            2.265                                       2. 44'                                      3.579-
Chi-Hausman                                0.002        0.011                          0.026       40.008                       12.211-         0.314
Number of Firms                 756          758          758               168          168          168               588          588         588
Number of Observations         5813         5813         4320              1251         1251          930              4466         4456        3249
Robust standard errors-Whits ccrrredonrm edasicity. Thailand is the base country. T-slatrisics are in parentesis.
Indicate 10,5,1, percent level ot signiticarnce, respesively.
lnstruaenll variable estimaton (IV): Insbuments are lagged explanato  variabies sof ims' Charactedsis (except ts varable Tradable Producers), lagged values t the variable Acssss
to Intl Equity Markets, and an indicator of each country's access to intemational bond markets.



Table VIA: Bank-Based vs. Market-Based Systems (OLS)
Dependent Variables:            Total DebtWEgulty               Short-Term DUeWEquity            Long-Term DebtREquity             Short-Term DebtJT.Debt            Ret. Eamings/T. Debt
Independent Variables.        Bank           Market            Bank          Market             Bank           Market             Bank            Market            Bank             Market
Firms' Characteristics:
Log of Net Fixed Assets     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)
Net Fixed Assets/Total     -0.634"         -1.2786         -0.474^          -1. 145-           -0.159          -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/Total Assets       -1.791"         -9.539-          -0.989 ^        -7,625           -0.802-         -1.913-           0.290^-           0.159i           15.583-           2.951-
(-4.743)        (-3.395)        (-3.558)        (-2.885)         (-4.820)         (.6.864)          (3.672)          (4.012)          (1.973)          (17.672)
Tradable Producers            -0.011          -0.112           0.052           0.183           -O.064        -0.295-            0.092            0.077-             0.805            0.019*^
(-0.082)        (-0.377)         (0.656)         (0.665)         (-0.677)         (-4.220)          (2.509)          (7.448)          (0.523)            (2.040)
Access:
Access to Intl Bond          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 to lntl Equity          0.486           0.000           0.412          0.000-            0.075            0.000           -0.041          0.000              -3.835            -0.039
Markets                      (1.597)         (i.520)         (1.564)          (1.924)         (0.556)          (0.943)          (.0.621)          (4.041)         (.0.966)           (-1.027)
Financial LiberalizatIon and Crises:
Financial Uberalizalion     -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)         (-0A54)             (3.108)
Mexican Crisis -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)
Asian Crisis - 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)
Asian Crsis - 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:
Argontina                     -0.114                        -0.298^                            0.184-                          .0.1 94-                              5.282
(-0.665)                        (-2.538)                          (1.963)                          (-4.887)                           (1A14)
Brazil                                     .1.701"                           -1.43r7                         -0.264-^                           -0.112-                             0.144-
(-2.875)                        (.2.574)                         (-3.395)                            (-8.186)                           (5.446)
South Korea                                    0.583                           0.436                             0.147                             -0.018                           0.302-
(1.277)                         (1.076)                           (1.031)                           (.1.096)                            (9.958)
Mataysia                                   -1.338--                         -1.138^ -0.200-                                                      *0.069                                0.029
(.2.928)                        (.2.659)                         (-2.643)                            (-5.350)                           (1.14g)
Mexico                                      -1.3b6 ^                         -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)          (-1.840)
Adjusted R-Squared            0.120            0.040           0.101           0.022            0.113            0.164            0.205             0.236            0.007             0.341
Fixed Effects
Chi Hausman
Numberof Firns                  143             656              143             656              143             656               143               656             139                619
NunnberofObservatioins          821            5316             821             5316              821            5316               821             5316              740              5073
it&st Star.drd    V    ceneonan ior nereronmedasictay. annesra mad Thailand are ihe base censy, hir bank-based and market based systems respetivety. T-statstics are In parenihesis.
8ank-based CDuntdi: Argetina and IndDnesla. Market-based rruntries: ramz, Malaysia, Mexde, South Korea, and Thailand.
indicate 10,8,1, percent level of signficance, respecrively



Table Vl.B: Bank-Based vs. Market-Based Systems (Within)
Dependent Variables:  Total DebtVEguity                Short-Term DebtWEquity           Long-Term Debt/Equity           Short-Term Debt/T.Debt           Ret. Earnings/T. Debt
Indeeendent Variables:      Bank           Market           Bank           Market            Bank           Market            Bank           Market            Bank          Market
Firms' Characteristics:
Log of Net Fixed Assets     0.064           -0.063          -0.040          -0.070           0.103           0.007          -0.026'        -0.019'**          -0.478        -0.023*^
(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/Total Assets     -2.163^*         -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)        (-4A81)           (0.963)         (4.610)         (-0.483)        (17.090)
Access:
Access to IntI Bond         0.049           0.079           -0.072          -0.161          0.120^^        0.240^*^        -a.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)
Access to Intl Equity       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)          (OA92)         (-0.030)         (-1.049)
Financial Liberalization and Crises:
Financial Liberalization   -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)         f-0.744)         !2 923!
Mexican Crisis- 1995        0.111           -0.104          0.082           -0.144           0.029           0.040           -0.003        -0.027..            6A77            0.001
(1.285)        (-0.583)         (1.319)        (-0.874)         (0.656)          (1.204)        (-0.149)        (-3.141)          (1.289)         (0.068)
Asian Crisis - 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)
Asian Crisis - 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)
Adjusted R-Squared          0.441           0.162           0.563            0.138           0.242           0.410            0.572           0.606            0.083           0.476
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
Numberof Firms                143             656             143             656              143             656             143              656             139              619
Number of Observations        821            5316             821            5316              821            5316             821             5316             740            5073
Robust standard errors-White correctlon for heteroskedastFcity. T-statstlcs are In parenthesis.
indicate 10.5.1, percent level of significance, respecUvely



Table VI.C: Bank-Based vs. Market-Based Systems (Instrumental Variables)
Dependent Variables:  Total Debt!Equtty                S_ ort-             .DebtReqty             Lorng-Term Debt/EquityS
Independent Variables:        Bank              Market                Bank           Market             Bank            Market             Bank            Market             Bank            Market
Flrms' Characteristics:
LogsofNetFixedAssets        0.181-               -0.039               0.032          -0.157"          0.149-           0.118-           -0.056"'         -0.034-'             0.432         -0.062-m
(2.932)           (-0.508)             (0.880)          (-2.354)          (4.344)          (4.617)          (4.525)          (-7.201)          (1.103)          (-5.801)
Net Fixed Assets/Total     -1.625-'           -1.762-              -0.926"'         -1.45A4"         -0.699-           -0.308"            -0.019         -0.204A            -12.371          0.148"
Assets                      (-4.211)           (-5.773)             (.4A19)          (-5.926)         (-2.808)          (-2.314)         (-0.213)         (-8.396)          (-1.528)          (3.166)
Profis/Total Assets        -2.523-           -20.364-               -1.425'        -16.185-'           -1.098'         4.179               0.249            0.183           37.242           2.245-
(-2.274)           (4.613)             (-1.950)          (-3.880)         (-1.880)         (.6.526)          (0.989)           (1.409)          (1.262)           (6.081)
Tradable Producers           -0.030              0.330                0.096            0.577            -0.125         -0.247             0.100'          0.080-              0.097          0.048-
(-0.101)            (0.837)             (0.722)          (1.569)          (-0.613)         (-3.094)          (1.716)           (6.421)          (0.048)           (3.142)
Access:
Access to lnt'l Bond        1.273-                0.784              0.552*            0.261          0.722"'           0.523-          -0.423'          -0.334A            -10.194          0.155"'
Markets                      (2.674)            (0.917)             (1.739)           (0.326)          (3.044)          (2.669)          (4.070)          (-6.578)          (-1.207)          (3.866)
Access to Intl Equity         0.646              0.000'               0.59             0.000             0.087            0.000            0.312            0.000'            8.083             0.000
Markets                      (0.395)            (1.671)             (0.618)           (1.579)          (0.110)          (1.614)           (1.428)          (1.961)          (0.934)           (1.386)
Financial Liberalizatlon and Crises:
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)
Mexican Crisis - 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)          (-1.5683)         (0.023)         (-1.844)          (1.002)           (0.222)
Aslan Crisis - 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)
Asian Crisis - 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)           (OA20)
Country Effects:
Argentna
Brazil                        0.068           -2A45-                 -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)
South Korea                                      0.040                                 0.000                              0.040                          -0.062-                             0.411"'
(0.052)                              (0.000)                            (0.228)                           (-2.698)                          (10.556)
Malaysia                                      -1.789-                               -1.637"'                             -0.152                          -0.088"                               -0.054
(-2.694)                             (-2.637)                           (-1.419)                           (-4.856)                           (-1291)
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)          (OA08)
Adjusted R-Squarad            0.074              0.030                0.047            0.017             0.096            0.160            0.196             0.218           -0.003             0.329
FbIed Effects
Chi-Hausman
Number of Firms                 143                656                  143              656              143              656               143              656               139              619
Number of Observations          543               3899                  543             3899              543              3899              543             3899               524             3796
Reoblst standard enors-White oorrrtion for hetenoskedasttdty. Indonesia and Theaind are She base Cmatry, tor bank-based and market based systems nespecthavy. -stetistas are in parenthesis.
tank-based csuntdes: Argentin and Indonasia. Market-based counies: Breatl Malaysia, Mexiooe Sosth Koree, and Thaiand.
lnstrumants are lamed exptanatory varitblas an Frms' Charracdertacs (exsept ate valatre Tradable Prmduers). ls9qed vtuaes oe the  ralda en arsess to intemetisnal equty markets, and an Indisator of mussy' access to bend ma*kets.



Appendix Table l: Argentina
Dependent Variables:   Total Debt/Equity                     Short-Term Debt/Equity                Long-Term DebtVEquity                 Short-Term DebtVT.Debt               Ret. Earnings/T. Debt
Independent Variables: OLS                 Within            OLS                WIthin              OLS               Within             OLS                Within            OLS                 Within
Firms' Characteristics:
Log of Net Fixed Assets      0.263...          0.605'           0.136-'            0.355'^^           0.127-^               0.119          -0.088...          -0.299'-'            -0.356              0.189
(4.406)          (2.851)           (3.114)             (2.828)            (4.485)           (1.288)           (-2.842)           (-2.884)           (-0.338)            (0157)
Net Fixed Assets/Total      -1.177"''           -0.007          -0.786-'              -0.373           -0.398-'^             0.536             0.070             -0.148             -5.048              6.515
Assets                        (-5.188)         (-0.008)          (-4.644)            (-1.153)           (4.080)             (0-913)           (0.7-54)          (-0.741)           (-1.029)            (0-939)
Profits/TotalAssets         -1.681-'          -1.748-'          -1.112-^            -1.240"-           -0.571^'             -0.495             -0.099            -0101            16.931'              15.944
(-3.124)         (-3.197)          (-2.949)            (-4.416)           (-2.258)           (-1.186)          (-0.677)           (-0.475)            (2.476)            (1.429)
Tradable Producers             -0.155                               0.020                                -0.176                                0.038                                -0.493
(-1.034)                            (0.270)                               (-1.484)                              (0.721)                              (-0.253)
Firm Age                        0.001            0.039^            -0.003              0.013            0.002-^             0.028'             -0.004             0.011             -0.031              0.771
(0.746)          (1.816)           (-0.260)            (1.088)            (2.081)            (1.921)           (-0.812)           (1.015)           (-1.082)            (1.292)
Domestic Currency Debt                                                                                                                       0.406-^            0.315-^
(6.742)           (3.110)
Access:
Access to Int'l Bond            0.096            -0.005            -0.033             -0.065            0.127^^              0.064            -0.099^             -0.044             0.009              0.529
Markets                       (0.997)           (-0.072)         (-04507)            (-1.347)            (2.063)            (1.273)          (-1.755)           (-1.203)            (0.011)            (0.635)
Access to Int'l Equity         -0.032            -0.140            -0.103             -0.061              0.092             -0.101             -0.071            0.108^             -0.930              0.486
Markets                      (-0.209)          (-1.059)          (-1.223)            (-1.005)            (1.075)           (-0.898)          (-0.601)            (1.849)           (-0.585)            (0.170)
Financial Liberalization and Crises:
Financial Liberalization    -0.739"'^         -2.065-^          -0.348-^            -1.267-^          -0.390-"             -0.432'           0.51 1***            0.000              2.578              -2.342
(-4.145)         (4.003)            (-3.078)           (-3.906)           (-3.848)           (-1.806)           (4.821)            (0.000)            (0.715)           (-0.274)
Mexican Criss - 1995            0.108            -0.008             0.148              0.051             -0.037             -0.048           0.2i9o"            0.142.'.             1.301               1.064
(0.926)          (-0.125)          (1.356)             (1.096)           (-0.870)           (-1.156)           (4.956)            (2.774)            (0.593)            (0.443)
Asian Crisis - 1997             0.269             0.008             0.221              0.099              0.055             -0.080                                                  -1.303              -3.948
(1.507)          (0.046)           (1.510)             (0.936)            (0.846)           (-0.747)                                                (-0.822)           (-1.447)
Asian Crisis -1998             -0.055            -0.176            -0.048              0.001              0.009             -0.162                                                   0.445              -3.100
(-0.372)         (-0.679)           (-0.601)            (0.017)            (0.108)           (-0.900)                                                 (0.386)           (-0.921)
C                             0.982''                             0.574"                                  0.416                                 0.000                                1.874
(2.146)                             (2.314)                               (1.497)                              (0.000)                               (0.261)
Adilisteci R_Snuiared           0.113             0.'i63            0.116              O.1                0.0r(              0.291             0.344              0.114              0.010              0.059
Flxed Effects
Chi-Hausman                                    14.910'^                             14.205^                              16.781"'                              16.141"'                                8.866"
Number of Firms                    63                63                63                 63                 63                 63                60                 60                 63                 63
Number of Observations            341              341               341                 341                345                345               228                228                277                277
Robust standard errors-Whiite correcton for heteroskedaslicity. Indonesia and Thailand are the base country. T-statstics are in parenthesis.
*,",-indicate 10,5,1, percent level of signrficance, respecfively



Appendix Table II: Argentina (Financial Development)
Dependent Variables:   Total DebtVEquity                   Short-Term DebtVEquity            Long-Term Debt/Equity              Short-Term DebtiT.Debt             Ret. Earnings/T. Debt
independent Variables:  OLS               Within           OLS              Within           OLS               Within           OLS               Within           OLS               Within
Firms' Characteristics:
Log of Net Fixed Assets     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)
Net Fixed Assets/Total     -1.159'              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           4.098           17.198^^           20.839
(-3.078)         (-3.199)         (-2.869)         (4.354)           (-2.321)         (-1.258)         (-0.700)          (-4A61)           (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             0.011           -0.001            0.001           0.002''           -0.002            -0.000           4.061             -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 Currency Debt                                                                                                              0.411"'           0.313"*
(6.860)          (3.099)
Access:
Arcess to Int'l 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)
Access to 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)
Financial Liberalization and Crises:
Finandal Liberalization    -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)          (43.787)         (-1.291)          (4.491)           (0.000)          (-1.244)          (-0.057)
Financial Development         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)
Asian Crisis -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)
Adjusted R-Squared              0.12             0.58            0.119             0.714            0.078            0.314             0.343            0.714             0.037             0.096
Fixed Effects                                                                  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
Number of Observations          332               332              332              332              335               335              228               228               267              267
Robut standard error-White oecton for heteros_edast_dty. T-statistics are in parenthesis,
The variable "financial developmenr' is fhe interaction of domestic finanGial development and financial Iberalization.
....... indicate 10.5.. vercent level of ninnifncance re-ecOively



Appendix Table III: Argentina (instrumental Variables) 1
Dopendent VariablGs:   Total Debt/Equity                    Short-Term  DebtiEqulty            Long-Term Debt/Equity               Short-Term  DebtfT.Debt'           Ret Earnings/T. Debt
Indepondent Variables:       IV             IV - FD              IV            IV - FD              NV             IV - FD             IV              IV - FD             IV              IV  FD
Flrms' Characterlstics:
Log of Net Fixed Assets        0.128            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)
Net Fixed Assets'Total     -1.173-'          -1.129"           -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)
ProfitstTotal Assets       -2.712"'          -2.997"            -1.488"          -1.630"          -1.250"'          -1.380-"            -0.040            -0.054          27.634'             25.434"
(-2.637)         (-2.833)          (-2.109)         (-2241)           (-2.691)         (-2.S71)           (-0.125,         (-O.t69)           (2.213)             (2.07,0)
Tradable Producers            -0.119            -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)           (0.859)          (-0.391)             (-0.171)
Firm Age                       0.000            0.000            -0.001            -0.001           0.002'            0002'              0.000             0.000            -0.030              -0.031
(0.058)          (0.039)          (-0.820)         (-0.886)           (1.778)           (1.803)          (-0.015)          (-0.044)          (-1.078)            (-1.116)
Domestic Cunency Debt                                                                                                                 OA39-             0.443"'
(5.235)          (5.362)
Access:
Access to Int'l Bond        1.047-"           1.021'"           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)
Access to lnftl Equity        -0.635            -0.546           -0.521            -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 Liberalization and Crises:
Financial Llberalkation     -0.497"          -0.971'"            -0.178           -0.433'         -0.318"'          -0.532-"             0.000             0.000            2.030               -5.522
,-.4 I        ~     .  U/ 2-..v5U/ -.-Af                                 .Uv         ~ LfU -I              'G.000)          ,G.000)           (G.G4G;R            (-I.uv97
Financial Development                           0.726                               0.391                              0.326                               0.061                                11A78
(1.572)                            (1.331)                            (1.382)                             (0.369)                               (1.584)
Mexican Crisis - 1995          0.217            0.140            0.225'             0.185            -0.006           -0.042          0.203'            0.197-"              0.786              4OA30
(1.613)          (1.001)           (1.837)          (1.516)          (-0.106)          (-0.643)          (3.828)            (3.493)          (0.360)             (-0.175)
Asian Crlsis -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)
Asian Crsis- 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)
Adjusted R-Squared             0.050             0.059            0.027             0.030             0.060            0.067             0.362             0.366            -0.011              .0.007
Fixed Effects
Chi-Hausman
Number of Firms                   63               63                63                63               63                63                60                60               63                   63
Number of Observatlons           278              269               278              269               282               272               167               167              274           _      264
Wih and efthouA Financial Development
2 There is not data tfr debt arasency deor,inaatr in 1997 and 1998.
Robust standard erors-Whito orrectrion for heturoskedasticty. T-statislics are in parmnthesis.
The varlable,'Inancial develoPtnent is the interactim ot donesticfinanoal develoProent and finanal liberaIzation.
....... Indicate 10,5.1, penrent level G1 significasnc, respecively



Appendix Table IV: Panel Estimates for Debt-Equity Ratios (Financial Development)
Dependent Variable: Total DebUEquity
Independent                Pool Latin America and East Asia                     Pool Latin America                          Pool East Asia
Variables:                         OLS        Within          IV               OLS        Within          IV               OLS        Within           IV
Firms' Characteristics:
Log of Net Fixed Assets           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)
Net Fixed Assets/Total Assets    -1,204..      .0.196    -1.739-           40.947-      -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)
Profts/Total Assets            -8.296-'      -8.095'-  -15.988-            -2.872-*    -2.346*-      -7.455...        -10.8086-        -8.784   .20.627--
(-3.382)    (-2.544)    (-4.507)           (-8.820)     (-6.188)     (-5.270)          (-6.208)      (-3.242)    (-3.992)
Tradable Producers               -0.204                     0.110           -0.222-                  -0.367-           -1.064-                      -0.070
(-0.785)                 (0.318)           (-1.927)                  (-2.125)          (-4.708)                  (-0.297)
Access:
Access to Intl Bond Markets      0.340-        0.120       0.812-             0.104        0.032     0.801-               0.144         0.059       -0.494
(2.144)     (1.227)      (1.837)           (1.168)      (0.588)      (3.028)           (0.683)      (0.345)      (-1.250)
Access to lnt'l Equity Markets     0.000        0.000    0.000-             0.650-         0.164        0.714            0.000*      0.000-       0.000-
(1.584)      (0.849)     (2.980)           (3.046)      (0.916)      (1.041)           (1.709)      (0.908)      (3.141)
Financial Liberalization and Crises:
Financial Liberalization       -0.789--        -0.707    40.998-*           0.697-        -0.148       -0.702            -0.464       -0.440        -0.692
(-3.167)     (-1.495)    (-2.741)          (-2.254)     (-0.546)     (-1.159)          (-1.241)      (-1.063)     (-1.535)
Financial Development             0.069        0.074        0.129           0.339-      0.335-        0.440              -0.072       -0.035-       0.043
(0.835)     (0.552)      (1.099)           (2.576)      (2.894)      (2.495)          (-1.531)      (-0.659)     (0.660)
Mexican Crisis -1995              4.268        4.108       4.520              0.007       40.008        0.054            0.234-        0.121'       0.001
(-0.861)    (-0.680)    (-1.047)            (0.098)     (-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-*                 -1.647--             0.196                    4.492
(-4.998)                (-3.412)            (0.556)                  (-0.759)
Brazil                         -1.450-                   -1.916'-            4.126                    0.963-
(-3.315)                (-2.915)          (-0.518)                   (-2.204)
Mexico                         '1.1511                     1.330
(-3.360)                (-1.936)
Indonesia                       4.391                      4.086                                                         0.685-                     0.383
(-2.094)                 (-0.166)                                                       (1.735)                   (0.979)
South Korea                       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-*                   4.530-
(8.262)                  (6.620)           (7.568)                   (8.513)           (7.826)                   (4.748)
Adjusted R-Squared                 0.040       0.158        0.029             0.075        0.483        0.055             0.246        0.507        0.198
Fixed Effects                                2.037-                                     6.866-                                       5.879-
Chi-Hausman                                    0.153                                       1.981                                    206.73-
Number of Firms                     778          778         778               230          230          230                281          281          281
Numberof Observations              5930         5930        4296              1713         1713         1210              2503          2503         2944
Robust standard ern-White crrection for hetemskedasticity. Base country is Thailand. T-staistsrs are in parenthesis.
The vanabbe tnancial developrnenr is the interaction of domestic financial development and financial hberalizaton
indicate 1D,5,1, percent level of significance, respecfively



Appendix Table V: Painel Estimriates for Short Term Debt (Financial Development)
Dependent Variable: Short-Term DebtlEquity
Independent             Wo)tU;America and East Asia                         Pool Latin America                        Pool East Asia
Variables:                      6;       Within          IV              OLS       \WfIin          IV              OLS       Within          IV
Firms' Characteristics:
Log of Net Fixed Assets     -0.068**      -0.059    -0.115"*           -0.005       _0010   -0.095"*           -0.096"'t    -0.125'      -0.100'
(-2.240)    (-1.530)    (-2.323)         (-0.445)    (4.941)    (-3.949)           (-2.644)    (-1.733)    (-1.738)
Net Fixed Assets/Total     -1j057***      -0.135   -1.410"*'         -0.964"'   -0.970***   -0.768-'           -1.433*"       -0.204   -1.458*"
Assets                       (-5.582)    (-0.441)    (-6.917)        (-12.179)    (-3.376)    (-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  -14.9111-
(-2.818)    (-2.193)    (-3.724)         (-8.730)    (-3.135)    (-5.444)          (4.144)    (-2.491)    (-3.283)
Tradable Procucers             0.084                   0.363         -0.148-'                 -0.171''         -0.599**-                   0.161
(0.352)                 (1.131)          (-3.082)                (-2.567)          (-3.285)                (0.815)
Access:
Access to Intl Bond            0.026S     -0.083       0.297            0.011    -0.069"    0.473"*'              -0.020      -0.078    -0.691"
Markets                      (0.253)    (-1.141)     (0.813)           (0.297)    (-2.158)     (3.218)          (-0.152)    (-0.681)    (-2.369)
Access to Intl Equity         ().000'      0.000    0.000*"              0.101       0.109       0.203           0.000*"    0.000"''   O.00*
Markets                      (1.916)     (0.956)     (3.384)           (1.453)     (1.252)     (1.044)           (2.040)     (0.957)     (4.079)
Financial Libaralization and Crises:
Financial Liberalization       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)
Financial Development          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)
Mexican Crsis- 1995           -0263       -0.133      -0.457            0.040       0.010      0.121**           0.173'      0.082'       -0.011
(-D.89C)    (-0.899)    (-0.968)          (0.790)     (0.241)     (1.979)           (1.773)     (1.218)    (-0.111)
Asian Crisis - 1997           0.752*       0.600       0.426            0.059        0.071       0.125          0.507"''       0.381     0.309*"
(1.705)     (1.000)     (0.743)          (0.792)     (1.316)      (1.539)          (3.126)     (3.195)      (2.197)
Country Effects:
Argentina                  -1:222"'                 -1.483"''           -0.052                -0.622"*
(-5.450)                (-3.684)         (-0.523)                 (-3.225)
Brazil                     - 1.261 * *              -1.714"**           -0.044                -0.701"'
(-3.072)                (-2.776)         (-0.558)                 (-4.368)
Mexico                      4.705"                    -0.758
(-2.401)                (-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
Fixed Effects                           1.955**'                                  7.231"'                                   4.841"''
Chi-Hausman                                0.348                                     1.108                                    0.932
Number of Firms                 778         778         778               230         230         230               281         281         281
NumberofObservations           5930        5930        4296              1713        1713        1210              2503        2503        2976
Robust standard errors-White worrection for heteroskedastichy. Base country is Thailand. T-stalistics are in parenthesis.
The variable 'financial development' is the inleraction of domestic financial development and financial libera rzaton.
indicate 10,5,1, percent level of significance, respectively



Appendix Table VI: Panel Estimates for Long-Term Debt (Financial Development)
Dependent Variable: Long-Term DebtlEquity
Independent             Pool Ladn Ameria and East Asia                    Pool Lain America                       Pool East Asia
Variables:                     OLS      Within          IV             OLS       Within         IV             OLS       Within         IV
Firms' Characteristics:
Log of Net Fixed Assets    0.102'"       0.011    0.121'              0.050       0.010      0.024          0.089'    -0.053-'   0.155'''
(5.970)    (0.550)    (5.043)           (1.368)    (0.373)    (0.370)            (4.923)    (-1.315)    (6.313)
Net Fixed AssetslTotal      -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)
ProfitslTotal Assets       -1.774'"  -1.483"'   -3.526-            -1.349'   -1.155'''  -3.533'"           -3.059-*      -2.412   -4.581'"
(-7.564)    (-4.968)    (-6.680)        (-6.101)    (-4.430)    (-3.513)        (-7.300)    (-5.599)   (-6.236)
Tradable Producers         -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:
Access to Int'l Bond       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)
Access to lnt'l Equity        0.000      0.000      0.000"'          0.549"       0.055       0.511            0.000    0.000-'    0.000'
Markets                     (1.111)    (0.665)    (2.206)            (2.554)    (0.516)    (0.864)           (1.206)     (0.805)    (2.371)
Financial Liberalizatlon and Crises:
Financial Uberalization   -0.587"        -0.177   -0.649'"          -0.560''    -0.159       -0.646         -0.405"       -0.300   -0.556-'
(-3.673)    (-1.056)    (-2.722)        (-Z191)    (-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)
Mexican Crisis - 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)
Asian Crisis - 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
(-0.639)               (-0.501)          (0.881)                (0.256)
Brazil                     -0.189-'               -0.201"            -0.081                  -0.261
(-2.941)               (-2.160)         (-0.429)               (-0.798)
Mexico                     -0.445"'*              -0.572"'*
(-3.435)               (-3.155)
Indonesia                 -0.168-'                  -0.125                                                     0.042                -0.178'
(-2.901)               (-1.328)                                                  (0.216)               (-1.745)
South Korea                  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*"
(5.051)                (3.521)          (3.344)                (3.349)           (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
Fixed Effects                          4.311'                                  5.927'                                   5.401"'
Chi-Hausman                           40.732'                                      1.49                                  6.774"
Number of Firms                778         778         778              230        230         230              281         281        281
Number of Observatons         5930        5930       4296              1713       1713        1210             2503        2503       2912
Robust standard errors-White correction for heteriskedasticity. Base country is Thailand. T-statistics are in parenthess.
The variable "financal development' is the interaction of domestic financial development and financial liberalization.
',  indicate 10,5,1, percent level of signficance, respectively



Appendix Table VIl: I'anel Estimates for Maturity Structure (Financial Development)
Dependent Variable: Short-Term DebtiTotal Debt
Independent             Pool Latin America and East Asia                  Pool Laitin America                     Pool East Asia
Variables:                     OLS      Within          IV             OLS      iNthin          IV             OLS       Within        IV
Firms' Characteristics:
Log of Net Fixed Assets    -0.,042-   -0.021-'   -0.038- -         -0.030'    -0.014--   -0.014            -0.035-'   -0.023-   -0.044'
(-15.22,3)   (-6.672)    (-8.367)        (-6.626)    (.3.063)    (-1.390)        (-8.455)    (-3.671)   (-9.332)
Net Fixed AssetslTotal     -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)
ProfitslTotal Assets       0.193-    0.190--         0.192          0.113-    0.190'-        0.183          0.290--      0.173-    0.286-
(5.11:2)    (4.585)    (1.617)          (2.019)     [2.940)    (0.680)          (4.814)    (2.593)    (2.265)
Tradable Producers         0.075'-                 0.075'-            0.010                  0.018          0.046-                 0.082-
(7.494I)               (6.296)          (0.309)                (0.346)          (2.810)                (6.120)
Access:
Access to Int'l Bond       -0. 154'-   -0.091--   -0.312--         -0.179-'   -0.095-'   -0.420--           -0.051-    -0.035"-  -0.234"-
Markets                    (-8.916)    (-7.122)    (-7.901)         (-6.811)    ( 4.557)    (-6.061)        (-2.592)    (-2.289)   (4.300)
Access to Int'l Equity     0.000--        0.000      0.000         -0.166--      -0.011      0.029          0.000'      0.000'       0.000
Markets                     (3.957)    (0.045)    (1.323)           (-2.729)    (.0.248)    (0.163)          (4.217)    (-0.647)    (1.355)
Financial Liberalization ;nd Crises:
Financial Uberalization    0122'-    0.062-        0.055"           0.136--      0.071-      0.012          0.137^-      0.096-    0.136'
(6.328)    (3.273)    (2.121)           (3.554)    :1.842)     (0.183)          (4.817)    (3.670)    (4.389)
Financial Development      -0.014'"   -0.013-"      -0.007'        -.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)
Mexican Crisis - 1995        -0.013    -0.018"-    -0.015             0.002      -0.018     -0.010            0.009      0.002-     -0.021
(-1.165)    (-2.399)    (-1.112)         (0.104)    (-0.952)    (-0.359)         (0.445)    (0.125)   (-1.270)
Asian Crisis - 1997          -0.013     -0.016'     -0.018           -0.046      0.040'    -0.057*           -0.021    -0.009-       -0.003
(-0.972)    (-1.649)    (-1.239)        (-1.470)    (.1.659)    (-1.676)        (-0.851)    (-0.523)   (-0.185)
Country Effects:
Argentina                  -0.134 '               -0.095-'         -0.174"-                 -0.044
(-7.66t8)              (-3.889)         (-4.021)               (-0.549)
Brazil                     -0.130"'-              -0.133"'         -0.113'                   -0.052
(-9.166)               (-7.238)         (-3.319)               (-0.757)
Mexico                     0.061-'                  0.073"-
(2.87(t)               (2.510)
Indonesia                    -0.011                  0.004                                                    -0.027                 0.029
(-0.7113)               (0.152)                                                 (-0.704)                (1.172)
South Korea                  -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
Fixed Efferts                          8.236-"                                 6201"-'                                  9.116"'-
Chi-Hausman                           23.287-"                                    3.791                                 13.398-
Number of Firms                778         778         778              230        230         230              281         281        281
Number of Observatons         5930        5930        4296             1713       1713        1210             2503        2503       2976
Robust standard errors-Whitecorection for hateroskedasticity. Base country is Thailand. T-statistics are in parenthesis.
The variable 'finanaal development' is the interaction of domestic financial development and financial liberalization.
indicate 10.5.1, percent evel of significance, respectively



Appendix Table Vil: Panel Estimates for Intemal Financing (Financial Development)
Dependent Variable: Retained Earnings/Total Debt
Independent            Pool Latin America and East Asia                Pool Latin America                     Pool East Asia
Varlables:                   OLS       Within         IV            OLS       Within         IV            OLS       Within         IV
Flrms' Characteristics:
Log of Net Fixed Assets     -0.127     -0.116      -0.004          -1.547    -.910'       9.607          -0.023-   -0.012      -0.040-
(-1.269)    (-1.388)    (-0.083)       (-1.200)    (-1.690)    (0.826)        (-2.495)   (-0.857)    (-4.348)
Net Fixed Assets/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/Total Assets       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)
Tradable Producers           0.148                 0.054            1.523                -0.279          0.049"*                0.031-
(0.91 1)              (0.482)         (0.889)                (-0.088)        (4.146)                 (2.260)
Access:
Access to Int'l Bond        -0.445      0.196      -2.460          -0.687      0.728    -23.880          -0.051**   -0.016-       0.058
Markets                   (-1.052)    (1.239)   (-1.265)          (-0.741)    (1.034)   (-1.032)         (-2.273)   (-1.496)    (1.495)
Access to Int'l Equity      -0.055      0.000      0.000           -2.517      0.224     10.574           -0.023    0.000'"       0.000
Markets                   (-0.090)    (-0.679)    (0.717)         (-0.766)    (0.073)    (0.727)         (-0.436)   (-0.697)    (0.326)
Financlal Llberalization and Crises:
Financial Liberalization     0.739      0.260      0.922           11.035      4.164    -50.799            0.053     0.001'     0.128-
(1.356)    (1.185)    (1.095)         (1.171)    (1.524)   (-0.760)          (0.684)    (0.026)      (2.362)
Financial Development       -0.126     -0.027     -0.195           -0.632      0.271    -18.930          0.025-     0.028-        0.002
(-1.063)    (-0.746)    (-0.972)       (-0.327)    (0.157)    (-0.939)        (2.830)    (2.763)     (0.220)
Mexican Crisis -1995         1.569      1.446      1.787            7.557      6.253      1.788           -0.011    -0.014'       0.006
(1.064)    (1.356)    (1.005)         (1.047)    (1.300)    (OA16)           (-0.239)   (-0.270)    (0.227)
Asian Crisis - 1997          0.021      0.306      -0.072          -2.109     -0.065     -4.674          -0.047'   -0.026-        0.026
(0.098)    (0.953)    (-0.237)        (-1.173)    (-0.038)   (-1.297)        (-1.705)   (-0.887)     (0.730)
Country Effects:
Argentina                    3.224                4.985*           -0.430                20.240
(1.574)               (1.679)         (-0.308)               (0.834)
Brazil                       0.160                 0.850
(0.903)               (1.526)
Mexico                                             0.000
(0.000)
Indonesia                   0.102                 -0.920                                                0.304'**               0.395-'
(0.554)               (-0.832)                                               (4.503)                 (8.471)
South Korea                 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
(-1.685)              (-1.051)         (-1.128)               (0.747)         (-0.797)               (-0.502)
Adjusted R-Squared           0.001      0.150      0.010            0.015      0.147      -0.011           0.196      0.425       0.319
Fixed Effects                         2.255-*                                2.143-*                                4.543"
Chi-Hausman                              0.01                                  0.039                                  0.385
Number of Firms               744        744         744             165         165        165             281        281         281
Number of Observations       5688       5813        4242            1230        1251        925            2503       4456        3186
Robust standard errors-White correction for heteroskedasitcity. Base country is Thaiand. T-statistics are in parenthesis.
The variable 'financial development' is the interaction of domestic fnancial development and financial liberalization.
,-,-'indicate 10,5,1, percent level of significance, respectively



Appendix Table IX.A: Bank-Based vs. Market-Based Systems (OLS- Financial Development)
Dowendent Variables:             Tota De    qulty                     gghor rorm Do t quiy                 Long-Term DebtEqulty                         Short-Torm          T.at             Ret. a ng         D
Indopendent Variables:          Bank             Market              Bank             Market              Bank                    Market               Bank             Market              Bank              Market
Flrms' Characteristics:
Log of Net Fixed Assets       0.103^^              0.020             0.020           -0.085-            0.083-                   0.105 -            -0.059-'          -0.039^^             -0.219           40.026w^
(3.224)           (0.463)            (0.903)          (-2.541)            (4.435)                  (5.199)           (-5.624)          (-14.001)           (-0.781)           (-5.068)
Net Fixed Assets/Total       -0.813-           -1.282"            -0.671 -          -1.152-               -0.142                   -0.130             -0.062          -0.193'               -4.385           0.064"
Assets                        (-3.226)           (-5.624)          (4.977)            (-5.901)          (-1.004)                  (-1.530)           (-1.304)         (.11.297)           (-1.554)            (1.981)
Pronits/Total Assets         -2.009'           9.59.62            --1               -7.666'-           -O.SS6'                   -.93 7'-           029G'''            I.u8'              tS.38-             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-^            0.95"             0.0 1'
(-0.261)          (-0.520)           (0.150)            (0.549)          (.OA37)                   (4.329)             (1.599)            (7A90)             (0.569)           (1.730)
Access:
Access to Intl Bond           0.241-               0.310             0.004             -0.054           0.237"-                  0.364''            -0.140^-          -0.157"-              -0.733             0.018*
Markets                        (2.616)           (1.352)            (0.062)           (-0.348)           (3.649)                   (3.311)           (-4.400)          (-7A25)            (-0.755)            (1.656)
Access to Intl Equity            0.077            0.000°              0.080           0.000-              -0.003                    0.000             -0.099-          0.000-^              -3.906             -0.000
Markets                        (0.489)           (1.692)            (0.979)           (2.130)           (-0.025)                   (1.076)           (-1.736)           (3.939)           (-0.888)           (-1.134)
Financial Liberalization and Crises:
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              0.077             -0.002             0.043             0.038                   0.035"               0.016          -0.012-'              -5.885             0.005
(0.182)           (0.644)           (-0.015)           (0.376)            (0.386)                  (2.006)            (0.303)           (-3.884)           (-0.756)            (0.745)
Mexican Crisis -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)
Asian Crisis - 1997             0.263             1.363-             0.107              0.833              0.156                  0.531-              -0.022             -0.017             -1.303             0.023
(1.238)           (2.309)            (1.082)           (1.531)            (0.952)                  (4.191)           (-0.584)           (-1.113)           (-0.832)            (0.699)
Country Effocts:
Argentina                       -0.123                              -0.279^                                0.156                                    -0.182--                                 0.157
(-0.580)                             (-i.792)                             (1.446;                                     ;-3.548)                               (0-043)
Brazil                                            -0.158                               -0.194                                       0.036                             -0.079^^                               0.132"
(-0.631)                            (-0.862)                                     (0.803)                              (-6.391)                               (5.761)
Mexico                                             0.248                                0.487                                      -0.238                              0.093-
(0.514)                             (1.131)                                     (-1.601)                              (3.781)
South Korea                                     2.094-                                1.656"                                      0.438'-                                 0.027                              0.276'-
(7.015)                              (6.489)                                     (3.981)                              (1A76)                               (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)                  (5.589)            (6.099)           (39.106)           (-0.780)           (-1.110)
Adiusted R-Squared              0.116              0.039              0.111             0.021              0.090                    0.178              0.203              0.237              0.007              0.345
Flxed Effects
Chi-Hausman
Numberof Firms                    140                638                140               638                140                      638                140                638                139               605
Numbero'Observations              766               5164               766              5164                766                      5164                766              5164                726               4962
Rotvmst standard errnrs.-Wite sonrecodn for heierenkadasltdty. Base eunsny is Malaysia. T-slaiislcs re in parenthesis.
The vadatble tiancaia develsymeat is the interaetsn of doMasti  financial denenoprnant and inancial libelatisan.
Bank-based rOuntides Argentina and indonesia. Market-based countries: Ereail. MalaySia, MeniCO, South Korea, and Thailand.
Indicate 1s51, prcemi lenel of signiticance, rspactively



Appendix Table IX.B: Bank-Based vs. Market-Based Systems (Within- Financial Development)
Dependent Variables: Total DebtUEquity                     Short-Term Debt/Equity         Long-Term Debt/Equity             Short-Term DebtIT.Debt             Ret Earnings/T. Debt
Independent Variables         Bank           Market             Bank        Market             Bank            Market             Bank           Market              Bank           Market
Firms' Characteristics:
Log of Net Fixed Assets     -0.173-           -0.049           -0.156'        -0.059           -0.017            0.010           -0.025         -0.021t--           -0.205          -0.020-
(-1.735)         (-1.020)         (-1.882)      (-1.489)         (-0.438)          (0.497)          (-1.311)         (-6.501)          (-0.653)         (-2.604)
Net Fixed Assets/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)         (-1A94)          (-3.273)          (-0.220)          (1.695)
ProfitslTotal Assets       -2.593 --         -8.904"         -1.503..       -7.376"          -1090'-          -1.528-*            0.091          0.207--            -8.499          3.134-
(-4.885)         (-2A00)          (-5.055)      (-2.099)         (-3.172)          (4.469)           (0.710)          (4.691)          (-0.539)         (16.925)
Tradable Producers
Access:
Access to Intl Bond           0.088            0.122            -0.024        -0.122          0.112-           0.244-           -0.053-          -0.104--            1.140           -0.023--
Markets                      (1.218)          (0.904)         (-0.528)      (-1.185)          (2.032)          (4.295)          (-2.106)         (-6.923)           (1.132)         (-2.474)
Access to lntl Equity         0.035            0.000            0.036          0.000           -0.001            0.000            -0.032            0.000           -0.112             0.000
Markets                      (0.208)          (0.913)          (0.467)       (1.071)         (-0.007)          (0.662)          (-0.709)          (0.110)          (-0.031)         (-0.993)
Financial Liberalization and Crises:
Financial Liberalization      0.023            4.772            0.090         -0.602           -0.067           4.170            -0.014          0.067...            4A55              0.055
(0.079)         (-1.451)          (0.377)      (-1.294)         (-0.485)          (-0.956)         (-0.182)          (3.481)           (0.707)          (1.179)
Finanrial Development        0.238'            0.081             0.113         0.061            0.125            0.020            0.004          4.013--            -5.236            0.011'
(1.705)          (0.574)          (1.220)       (0.457)          (1A28)            (1.241)          (0.098)         (-4.168)          (-0.844)          (1.922)
Mexican Crisis - 1995         0.106            -0.173           0.082         -0.194            0.024            0.022            -0.003         -0.022---           7.984            4.003
(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             1.236           0.119'         0.650            0.150          0.586--            -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            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 of Firms                 140              638              140           638              140               638              140               638              139               605
Number of Observations          766             5164              766          5164              766              5164              766             5164               726             4962
Robust standard errors-White correcton for heteroskedasUcity. T-statistics are in parenthesis.
The variable "fnancial development is the interacion of domestc financial development and financial liberalzation.
Bank-based ceuntries: ArgenUna and Indonesia. Market-based countries: Brazil, Malaysla, 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)
Dependent Variablet          Total DeitiEqu6 t               hort-Term  DebtjEgquit        Long-Ternn Debt/Equrty          Short-Term DeWiT.Debr          Ret. EarningslT. Debt
Indeend«"   sabiabl       Banj         Market            iank         Market            eank          Market              n            aret             a             aret
Firmns Characteristics:
Log of Net FixedAsse  0.126"            -0.015          0.007        -0.137"*        0.119  -       0.122--        -0.0661         -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)
Net Fixed             -1.479.         -.'795- *      -0.878-         -1.504*         -0.6011         -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-                -       -1.381-                -         -0.870       -4.305--           t 19Q           0A.65         36.427         2.327-
(-2.208)     20.254---        (-2.040)      15.949-           (-1.532)       (-8.178)         (0.806)         (1.194)        (1.268)         (6.031)
Tradable Producers       -0.214          0.312          -0.027          0.552          -0 188       -0,240-            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:
Access to Intl Bond    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)        (-1.219)        (3.635)
Access to ltt Equity    -1.342         0.000*           -0.420       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)
Financial Liberalization and Crises:
Financial Liberalizati   -0.623       -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)
Financial Develoome    -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)
Mexican Crisis -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)
Asian Crisi- 1997         0.299          0.756           0.127          0.368           0.172        0.388-            -0.024         40.022          -2.894          0.019
(1.339)        (0.994)         (1.173)        (0.515)         (1.036)        (3.194)        (-0.623)        (-1.412)        (-1.356)        (0.528)
Count.ry Pff-us,
Argentina                -0.090                         -0.296                          0.206                        -0.225*                           0.312
(-0.267)                       (-1.101)                       (1.231)                        (-1.988)                        (0.072)
Brazil                                -2,055                         -1.S29                          -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                         -0.0601                        0.389.
(0.055)                       (0.040)                        (0.080)                         (-2.519)                        (9.771)
Malaysia                               -1.957"                        -1.697*                         -0.261                        -0.074-                           -0.077
(-2.250)                      (-2.087)                        (-1.913)                       (-3.659)                        (-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)
Adlusted R-Squared        0.050          0.029           0.048          0.016           0,054          0.158           0.211           0.221          -0.002          0.338
Fixed Effects
Chi-Hausman
Number of Firms             140            638             140            638             140            638             140             638             139            605
Number of Observalt    497                3799            497           3799             497            3799             497           3799             510            3732
RonSnutasndard anrror-vNterroran toSetnrenoiedanlrty. sane neauy 19 ThaHand. T.bs5nnnarso mpreun,esis.
1hova5e litaseeS d5seh,,n IsnettherfnteraSntofdon esclarsfld  dlane refed  nanstnIIt,rnll,anr.
Bnnkbasrd mn5sA: rftta and Ind.areS. Mwrkbt4awsd cWn:t eBradlt, MabysbniMenon. Soulh Korea. and Thaland.
indkiate 10.5.1.  cat eon od signifioanre. rsnesV






Policy Research Working Paper Series
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Financial Liberalization: A Cross-                                            31823
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WPS2314 Technological Leadership and      Beata K. Smarzynska     Aprii 2000         L. Tabada
Foreign Investors' Choice of                                               36896
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in the Southern Cone of Latin America                                       37157
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WPS2320 Does More Intense Competition Lead  Mark A. Dutz          April 2000         H. Sladovich
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