The Effect of Financial Liberalization on the Capital Structure and Investment Decisions of Indonesian Manufacturing Establishments

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Abstract
This article analyzes the consequences of financial liberalization, using a large panel of Indonesian manufacturing establishments. It discusses whether financial reforms have had an impact on investment and on the allocation of credit and whether the effects differ depending on the type of firms. The overall conclusion is that shifting from administrative toward market-based allocation of credit has increased borrowing costs, particularly for smaller firms, but, at the same time, has benefited firms by giving them widened access to finance.

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