Resumen

We use issuance-level data to study how capital flows that enter emerging countries affect equity issuance and corporate investment. We find that foreign inflows are strongly correlated with country-level issuance, suggesting that inflows do not entail just an ownership change between domestic and foreign shareholders. Firms issuing in international equity markets and large issuers in domestic markets drive this relation; they are the ones more likely to raise equity when their country receives a capital inflow. The use of MSCI Emerging Markets Index portfolio weights as an instrument for capital flows suggests that shifts in the supply of foreign capital play an important role in our results. Issuers use a substantial portion of their equity proceeds to fund corporate investment, which increases by more than one-half of every million U.S. dollar of foreign equity capital entering the country.