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Unformatted text preview: ACCESS TO LONG TERM DEBT AND EFFECTS ON FIRMS PERFORMANCE: LESSONS FROM ECUADOR by Fidel Jaramillo (Multiplica) and Fabio Schiantarelli (Boston College and The World Bank) Revised,November 1996 Abstract : In this paper we document the maturity structure of firms debt in Ecuador and we discuss how it has been affected by government intervention in credit markets and by financial liberalization. Using firm level panel data, we then investigate the determinants of access to long term debt. Finally, we provide evidence on the impact of the maturity structure of debt on firms performance, in particular on productivity and capital accumulation. Paper prepared for the conference Term Finance: Theory and Evidence, Finance and Private Sector Development Division, Policy Research Department, the World Bank, Washington D.C., June 14, 1996. We would like to thank C. Calomiris, G. Caprio Jr., A. Demirguc-Kunt, M. Giugale, S. Claessens, R. Levine, V. Maksimovic, S. Ospina and other conference participants for useful comments and suggestions. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. I. INTRODUCTION The main emphasis in the theoretical and empirical analysis of firm financing has been on the choice of debt versus (internal or external) equity. 1 Although, the idea of debt as an homogeneous source of funds is a powerful theoretical construct and a useful first step, one must go beyond the leverage decision and investigate other dimensions of the debt choice. In particular the nature of debt and its incentive properties can differ according, for instance, to its maturity (long and short) and to the providers (banks or markets). 2 In this paper we plan to address the issue of the maturity structure of firms debt and to provide some empirical evidence for Ecuador. 3 Although the issue of the maturity structure of debt is important for both developed and developing countries, there are some aspects of the problem that have been more often (although not exclusively) raised with respect to the latter. In particular, there has been a widespread perception both by domestic and international policy makers that asymmetric information and contract enforcement problems may lead to a shortage of long term finance. This shortage is thought to have a cost in terms of productivity growth and capital accumulation and it may justify some form of government intervention. The setting up in most developing countries of long term credit institutions (development banks) and/or of programs to foster the provision of long term credit was indeed the policy response to this problem. The emphasis on long-term finance and on the potentially adverse consequences when it is in short supply is somewhat at odds with recent theoretical contributions that emphasize the 1 See Harris and Raviv (1990) for a comprehensive critical review.See Harris and Raviv (1990) for a comprehensive critical review....
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This note was uploaded on 11/15/2010 for the course FINANCE FI515 taught by Professor Haertel during the Spring '10 term at DeVry Denver.
- Spring '10