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TITLE:
Capital Market Imperfections Before And After Financial Liberization: An Euler Equation Approach To Panel Data For Ecuadorian Firms

AUTHOR(S):
Fabio Schiantarelli, Boston College
Andrew Weiss , Boston University
Fidel Jaramillo, Facultuad Latinoamericana de Ciencias Sociales

DOCUMENT TYPE: Article

ABSTRACT:
Using a large panel of Ecuadorian firms, this paper analyzes the role of capital market imperfections for investment decisions, and investigates whether the financial reforms introduced in the 80抯 have succeeded in relaxing financial constraints. The model allows both for an increase cost of borrowing, as the degree of leverage increases, and for a ceiling on a latter. The econometric results suggest both types of capital market imperfections are important for small and young firms, but not for large ones. Moreover, the estimated equations do not provide evidence that financial reform in Ecuador has helped to relax these financial restraints.