The Impact of Capital Account Liberalization Measures

We examine the price behavior of firms when monetary authority announces measures that can be considered as capital account liberalization. In particular, we investigate the reaction of stock market to the announcement of the relaxation revocation of capital control in Thailand on January 29, 2007. The liberalization of capital account is expected to have a positive effect on asset prices. Based on a sample of 242 non-financial firms listed on the Stock Exchange of Thailand (SET), we find that the average abnormal return on the announcement day (Day 0) is 0.05 percent and statistically insignificant. However, we find positive and significant abnormal returns on Day -2, Day 1, and Day 3 relative to the announcement day. We also observe some evidence to suggest that capital account liberalization does not affect stock prices of firms in all industries. From a public policy perspective, our results suggest that liberalizing capital account by relaxing capital control measures could improve firm value in the short term, which may, in turn, boost the level of economic growth in the long run