The perils of a central bank's capital control: how substantial is the effect on firm value?

In this paper we examine the cross-sectional effects of the announcement of the imposition of the unremunerated reserve requirement (URR) in Thailand on stock prices. We show that there are negative abnormal returns following the announcement of the imposition of the URR, and that the effect of the imposition of the URR on stock prices seems to be relatively short lived. Our tests show that firm size, financial risk, and firm profitability have no effect on abnormal returns on the first-trading day following the URR announcement, but the effects of firm size, firm profitability and financial risk on abnormal returns become more evident in later days. We also find some evidence to suggest that there is no industrial effect on abnormal returns around the URR announcement.