خطرات کنترل سرمایه بانک مرکزی : چگونه اثر بر ارزش شرکت قابل توجه است؟

In this paper we examine the cross-sectional effects of the announcement of the imposition of the unremunerated reserve requirement (URR) in Thailand on stock prices. We show that there are negative abnormal returns following the announcement of the imposition of the URR, and that the effect of the imposition of the URR on stock prices seems to be relatively short lived. Our tests show that firm size, financial risk, and firm profitability have no effect on abnormal returns on the first-trading day following the URR announcement, but the effects of firm size, firm profitability and financial risk on abnormal returns become more evident in later days. We also find some evidence to suggest that there is no industrial effect on abnormal returns around the URR announcement.

Although the debate on the desirability and feasibility of capital account restrictions is still ongoing, several scholars such as Fischer (2001) and Forbes, 2005 and Forbes, 2007 argue that the market-based capital control, especially, the unremunerated reserve requirement (URR), remains popular amongst policy makers in developing countries. From the perspective of monetary authorities, the imposition of capital controls is expected to result in relatively stabilized exchange rates, which in turn helps to maintain and/or stimulate the levels of output and/or employment. In response to large increases of capital inflows to emerging market economies in the 1990s and 2000s, several developing countries imposed capital account restrictions. For instance, Chile, Colombia, Brazil, and Thailand had implemented market-based capital controls in the form of URR in the 1990s and 2000s (see e.g., Clements and Kamil, 2009 and Vithessonthi and Tongurai, 2008). In this paper we argue that the effect of capital controls on macroeconomic variables (e.g., employment) is, at best, indirect and difficult to observe. We believe that the effects of the imposition of capital controls on financial markets (e.g., on asset prices) are more observable. Nevertheless, a stream of research that examines whether the use of capital account restrictions benefits firms and ultimately increases firm value remains scant. In particular, existing research that investigates the effects of the imposition of capital controls on stock prices at the firm level appears to be limited to only a few studies (see e.g., Vithessonthi and Tongurai, 2008 and Vithessonthi and Tongurai, 2009). Thus, our understanding of this issue remains far from complete. Therefore, we provide further evidence on this issue by empirically testing whether the imposition of capital controls benefits firms in the short run. If we consider the imposition of a capital control as a source of an exogenous liquidity shock that reduces the availability of foreign financial capital in a small and open country, the theory of a liquidity premium in asset returns (see e.g., Becker-Blease and Paul, 2006 and He and Xiong, 2012) would predict an inverse effect of the imposition of a capital control on firms’ future prospect. For instance, He and Xiong (2012) show that a fall in debt market liquidity results in an increase in the liquidity premium of corporate bonds and credit risk. Suppose that foreign investors are unwilling to provide short-term funds to finance investments in a country that implements controls on short-term capital inflows. Then we expect that a decrease in market liquidity, which tightens firms’ financial constraints (Harrison et al., 2004) and causes investors to increase their required rates of returns so as to compensate for increased investment risk (Girard and Rahman, 2007), would increase the cost of capital. This impact on the cost of capital would, thereby, reduce firms’ investment and growth opportunities through a fall in the number of positive NPV projects available to the firms. Anwar and Sun (2011) and Takagi (2002) note that most small and emerging market countries such as Thailand, Malaysia, and the Philippines are generally a bank-based economy in which firms typically rely on financial intermediaries (e.g., banks) as their main source of external financing. If banks and other financial institutions manage to pass the higher costs of international borrowing through their domestic clients, then the imposition of capital controls would lead to higher costs of external financing for firms, thereby suggesting that firms are likely to experience greater financial constraints and higher financing costs during the capital control period (see e.g., Forbes, 2007). This prediction is based on the assumption that the pattern of small- and medium-sized firms’ borrowing remains relatively unchanged in the short run. In addition to causing higher costs of financing, the imposition of capital controls causes deterioration in market liquidity, which in turn increases refinancing (or rollover) risk for firms that rely more on short-term financing. In this study we attempt to address two research questions. First, do investors react favorably to the announcement of the imposition of capital controls in developing countries, as expected by monetary policy makers? Second, could firm-specific characteristics explain variations in unexpected changes in stock prices around the announcement of the imposition of capital controls? Accordingly, the main purpose of this paper is to examine the effect of the imposition of capital controls in emerging market countries on stock prices in recent years. Given that the Bank of Thailand recently imposed the URR, the examination of the effect of the URR in Thailand on stock prices provides us new insights into the repercussions of capital controls in an emerging market economy. In particular, we focus on the Bank of Thailand's announcement of the imposition of the URR on December 18, 2006 (see Bank of Thailand, 2006b and Bank of Thailand, 2006c). We show that abnormal returns (ARs) around the announcement of the imposition of the URR in Thailand are negative. In addition, we find that both financial and non-financial firms experience negative ARs around the URR announcement. Overall, these findings indicate that investors react negatively to the imposition of the URR, questioning monetary authorities’ beliefs that such capital account restrictions are beneficial to firms in small and open economies. Our findings are consistent with the findings reported in related studies (e.g., Vithessonthi and Tongurai, 2008 and Vithessonthi and Tongurai, 2009) that examine the impact of the URR on stock prices at the firm level. We also show that firm size, financial risk, and firm profitability could not explain variations in initial stock returns (i.e. ARs on the first-trading day following the announcement of the URR). However, firm size, financial risk, and firm profitability have a significant effect on the 6-day cumulative ARs around the announcement of the URR. We also find that there is little evidence to suggest an industry effect on ARs around the announcement of the URR. That is, firms in all industries seem to be equally affected by the imposition of the URR.

In this paper we set out to answer two key questions: First, do investors react favorably to the announcement of the imposition of capital controls, as expected by monetary policy makers? Second, do firm-specific characteristics explain variations in unexpected changes in stock prices around the announcement of the imposition of capital controls? We answer these two questions by examining (1) whether the imposition of the 30% URR, which is one form of capital controls, in Thailand on December 18, 2006 is detrimental to firm value in Thailand, and (2) whether financial risk and profitability drive stock prices around the announcement of the URR. Our final sample consists of 289 and 280 firms in eight industry groups that listed on the Stock Exchange of Thailand at the time of the URR announcement for the event study and regression analyses, respectively. Three main findings emerge from this study. First, the results of our univariate analyses provide support for Hypothesis 1, suggesting that firms are likely to experience negative abnormal stock returns around the announcement of the URR. The negative and significant abnormal returns for the financial firm and non-financial firm subsamples provide further support for Hypothesis 1. Our findings are consistent with prior studies (e.g., Vithessonthi and Tongurai, 2008 and Vithessonthi and Tongurai, 2009) that examine the impact of capital controls on stock prices at the firm level. Second, the results of regression analyses, especially in the case of CAR (0, 5) and CAR (0, 10) provide empirical support for Hypothesis 2 and Hypothesis 3, indicating that variations in ARs around the announcement of the URR can be explained by financial risk and firm profitability. Furthermore, firm size appears to affect ARs around the announcement of the URR. Third, we do not find empirical evidence to suggest that there are industry-specific effects on ARs around the announcement of the URR. That is, firms in all industries are equally affected by the imposition of the URR. Our study provides additional empirical evidence on the adverse consequences of the imposition of capital controls at the firm level. Nonetheless, the use of capital controls remains an important policy instrument in many emerging market countries. We hope that in light of the results of our study, policy makers will pay more attention to the repercussions of capital controls at macro and micro levels. One plausible avenue for future research is to examine the robustness of our results by testing the effect of capital controls on stock prices in other countries. In the case of a control on capital outflows, while we expect to observe a negative stock price reaction to the control on capital outflows, we are uncertain whether the nature of controls on capital outflows would effectively prevent foreign investors from selling domestic assets, thereby limiting the direct and immediate effect of controls on capital outflows on the financial markets. For instance, in the event that foreign investors cannot repatriate the funds out of the country that imposes controls on capital outflows, the stock price effect of controls on capital outflows may be less negative than that of controls on capital inflows. This prediction is still subject to future empirical investigation. Furthermore, our exploratory study only examines a limited set of firm-specific factors; therefore, it is possible that other firm-specific characteristics may affect the ARs around the announcement of the imposition of capital controls, which is an issue we leave for future research.