Expected completion: Spring 2014
Essays in Financial Liberalization in ASEAN 4 Countries
This dissertation includes three essays on financial liberalization in the ASEAN 4 countries: Indonesia, Malaysia, Philippines, and Thailand using data from 1990 to 2011. It explores the effects of financial liberalization on the cost of capital, investment, and borrowing behavior of the firm sector in ASEAN 4 countries. Essay one calculates an aggregate tax-adjusted weighted average cost of capital. Empirical results show that the cost of capital in ASEAN 4 significantly decreased since financial liberalization. Essay two analyzes the investment behavior of the firm sector since financial liberalization. Stepwise least square forward multiple regression shows that future changes on the return of capital affects investment in Indonesia, Malaysia, and Thailand while future changes in the cost of capital affects investment in the Philippines. Breaking down the cost of capital in terms of debt and equity, future changes in the cost of debt, not the cost of equity, matters for investment in Indonesia, Malaysia, and Thailand along with future changes in the return of capital. These results suggest that current and expected returns on capital and cost of debt explains investment behavior in ASEAN 4 except in the Philippines. Essay three calculates an optimal debt-to-net worth ratio and shows that lower cost of capital since financial liberalization led to episodes of excessive borrowing by the firm sector in ASEAN 4 economies except in the Philippines.