FINANCIAL REFORM AND INFORMATION PROBLEMS IN CAPITAL MARKETS: An Empirical Analysis of the Chilean

This paper investigates whether the Chilean financial reforms of the 1980s have contributed to reducing market imperfections in Chilean capital markets in the late 1980 and early 1990s. To analyse this issue, patterns of investment and its finance for different types of firms is studied, based on balance sheet information of a panel of 70 firms. The general conclusion is that it remains difficult to find evidence for the fact that reforms did improve access of small and young firms to outside finance, indicating that market imperfections may still be prevalent. The results also show that those specific reforms, which aimed at reducing intra-conglomerate lending, seem to have been successful, since access of non-conglomerate firms has increased, indicating a reduction of existing market imperfections for these firms. JEL Classification: D8, G3, O16 * Please, send all correspondence to Niels Hermes, Department of Economics, University of Groningen, PO Box 800, 9700 AV, Groningen, The Netherlands. Fax: +31 50 3637337; e-mail: [email protected]