Title: Economic freedom, corporate investment and financing constraints.
Authors: Alfonsina Iona - Queen Mary University of London (United Kingdom) [presenting]
Leone Leonida - King's College London (United Kingdom)
Abstract: During the 2008 financial crisis, economic freedom and firm investment begin to undertake a declining path, while financial constraints appear to become more severe for the US firms. Using a standard model of investment, we study the relationship between economic freedom, corporate investment and financial constraints in a less than perfectly competitive market and in presence of imperfect capital markets. We test the theoretical predictions of our model by using a large panel of nonfinancial US firms. Our results show that economic freedom positively affects corporate investment, and it is able to mitigate the negative impact of financial constraints on investment. Moreover, we find that these effects act mainly through credit market freedom, efficiency of legal system and access to money.