Business Finance in Less Developed Capital Markets

By Klaus P. Fischer; George J. Papaioannou | Go to book overview
10.
Uruguay had a value-added tax rather than a profit tax during the sample period. Wages should be to include administrative and marketing expenses.
11.
An earlier version of the model incorporated the real exchange rate as a proxy for devaluation rates. Since the results suggested that firms were able to accurately devaluation rates for the current year, we have simply included the nominal devaluation rate directly in this version. Accurate prediction was no doubt aided by the fact that devaluation rates were preannounced by the Central Bank during much of the sample period.
12.
An alternative model was estimated in which operating earnings per unit assets played this role--it yielded very similar results. The version of the model with sales growth is reported here because expected sales proxies seem to be in the literature ( Taggart 1977; Yadeni 1978).
13.
This strongly suggests that previous portfolio models that treat physical capital as exogenous are misspecified.
14.
De Melo and Tybout ( 1986) found a negative between the real exchange rate and the level of investment during the post-1973 period using Uruguayan macro data. Since low real exchange rates are associated with low rates of devaluation, this finding seems to conform to the micro results reported here.

REFERENCES

Brainard William, and James Tobin. ( 1968). "Pitfalls in Financial Model Building." American Economic Review, May, 99-122.

Dixit Avinash, and Joseph Stiglitz. ( 1977). "Monopolistic Competition and Optimal Product Diversity." American Economic Review, 279-308.

Fama E., and H. Babiak. ( 1968). "Dividend Policy: An Empirical Analysis." Journal of the American Statistical Association, 1132-1161.

Fomby Thomas, R. Carter Hill, and Stanley Johnson. ( 1984). Advanced Econometric Methods. Heidelbeg: Springer-Verlag.

Hanson James, and Jaime de Melo. ( 1985). "External Shocks, Financial Reforms, and Stabilization Attempts in Uruguay During 1974-83." World Development, August, 917-939.

Jalilvand Abolhassan, and Robert Harris. ( 1984). "Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study." Journal of Finance, March, 127-145.

Melo Jaime de, Ricardo Pascale, and James Tybout. ( 1985). "Uruguay, 1973-81: The Interplay of Real and Financial Shocks." World Development, August, 995-1015.

Melo Jaime de, and James Tybout. ( 1986). "The Effects of Financial Liberalization on Savings and Investment in Uruguay." Economic Development and Cultural Change, April, 561-588.

Pascale Ricardo. ( 1982). El Comportamiento Financiero de la Industria Manufacturera Uruguaya. Montevideo: Banco Central de Uruguay.

Prucha Ingmar, and Ishaq Nadiri. ( 1986). "A Comparison of Alternative Methods for the Estimation of Dynamic Factor Demand Models under Non-Static Expectations." Journal of Econometrics 33:187-211.

Taggart Robert. ( 1977). "A Model of Corporate Financing Decisions." Journal of Finance. December, 1467-1484.

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