Abstract
There is a well-established case for equity liberalizations helping …rms dependent on external investors by providing access to foreign capital and improving public and corporate governance. This paper stresses the impact of foreign equity ‡ows on …rms’relationship with another crucial stakeholder –the suppliers. A buyer backed by foreign capital means smaller probability of contract failure due to default. Improved public and corporate governance lowers the risk of possible breach of contract. Foreign equity ‡ows can thus reassure upstream …rms, disproportionately promoting industries dependent on the full trust of their suppliers. Results from panel data and eventstudy approach con…rm this hypothesis, establishing a novel channel from …nancial globalization to real economy.
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