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Finance and Investment: The European Case$
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Colin Mayer, Stefano Micossi, Marco Onado, Marco Pagano, and Andrea Polo

Print publication date: 2018

Print ISBN-13: 9780198815815

Published to Oxford Scholarship Online: January 2018

DOI: 10.1093/oso/9780198815815.001.0001

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Understanding the Use of Long-Term Finance in Developing Countries

Understanding the Use of Long-Term Finance in Developing Countries

(p.65) 4 Understanding the Use of Long-Term Finance in Developing Countries
Finance and Investment: The European Case

María Soledad Martinez Pería

Sergio L. Schmukler

Oxford University Press

This chapter reviews recent evidence on the use of long-term finance in developing countries (relative to developed ones) to try to identify where short- and long-term financing occurs, and what role different financial intermediaries and markets play in extending this type of financing. Although banks are the most important providers of credit, they do not seem to offer long-term financing. In fact, loans in developing countries have significantly shorter maturities than those in developed countries. Capital markets have become increasingly sizable since the 1990s and can provide financing at fairly long terms. But just a few large firms use these markets. Only some institutional investors provide funding at long-term maturities. Incentives for asset managers are tilted toward the short term due to constant monitoring. Instead, asset-liability managers have a longer-term horizon, as foreign investors in developing countries do. Governments might help expand long-term financing, although with limited policy tools.

Keywords:   banks, bond markets, firm financing, financial crises, financial intermediaries, institutional investors, issuance maturity, long-term debt, short-term debt

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