Firm Performance and Capital Account Liberalization

This paper examines whether and under what conditions firms benefit from capital account liberalization. Using firm-level data on more than 33,000 publicly listed firms across 106 countries over the period 1980–2019 and employing an instrumental variables two-stage least squares (IV-2SLS) approach to address endogeneity concerns, the analysis shows that capital account liberalization improves firm performance by increasing profitability and reducing leverage. However, these benefits are highly conditional. Firms operating in countries with deeper financial markets and greater macroeconomic stability experience significantly larger gains, while firms in low-income economies derive limited benefits. Moreover, larger and more mature firms benefit disproportionately from liberalization, whereas younger and smaller firms may experience adverse effects. These findings highlight the importance of financial development and institutional readiness in shaping the firm-level outcomes of capital account liberalization. JEL classification numbers: D24, F36, F43, G10