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The impact of foreign liabilities on small firms: Firm-level evidence from the Korean crisis

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  • Kim, Yun Jung
  • Tesar, Linda L.
  • Zhang, Jing

Abstract

Using Korean firm-level data on publicly-listed and privately-held firms together with firm exit data, we find strong evidence that holdings of foreign-currency denominated debt negatively affected the economic performance of small firms during the 1997–98 crisis. The large exchange rate depreciation that occurred during the crisis resulted in a decline in net worth for firms with foreign-currency denominated debt on their balance sheets. Small firms with more short-term foreign debt were more likely to declare bankruptcy. Conditional on surviving the crisis, small firms that had more short-term foreign debt experienced larger declines in sales. The exit (bankruptcy) margin accounts for a large fraction of small firms' adjustment during the crisis.

Suggested Citation

  • Kim, Yun Jung & Tesar, Linda L. & Zhang, Jing, 2015. "The impact of foreign liabilities on small firms: Firm-level evidence from the Korean crisis," Journal of International Economics, Elsevier, vol. 97(2), pages 209-230.
  • Handle: RePEc:eee:inecon:v:97:y:2015:i:2:p:209-230
    DOI: 10.1016/j.jinteco.2015.05.006
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    More about this item

    Keywords

    Financial crisis; Firm-level data; Balance-sheet effects; Korean economy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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