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Corporate Financial Policies and Performance around Currency Crises

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Author Info
Arturo Bris (Yale School of Management and ECGI)
Yrjö Koskinen (Boston University School of Management and CEPR)
Vicente Pons (Yale School of Management)

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Abstract

This paper studies firm-level leverage and performance measures before and after a currency crisis, using data from 17 countries. We show that, prior to a crisis, companies that expect to benefit from currency depreciations increase their leverage more than companies that are expected to be harmed by the depreciation. Profitability and financial fragility ratios display consistent patterns. We provide evidence that the Asian crisis is different from the previous European and Latin American ones: In Asia, all firms become more fragile after the crisis and their profitability declines and leverage increases further, whereas elsewhere there are clear signs of recovery after a crisis occurs.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 77 (2004)
Issue (Month): 4 (October)
Pages: 749-796
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:77:y:2004:i:4:p:749-796

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Dumas, B, 1978. "The Theory of the Trading Firm Revisited," Journal of Finance, American Finance Association, vol. 33(3), pages 1019-30, June. [Downloadable!] (restricted)
  2. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150. [Downloadable!] (restricted)
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  3. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "Paper Tigers? A Model of the Asian Crisis," NBER Working Papers 6783, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
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  6. Dumas, Bernard & Solnik, Bruno, 1995. " The World Price of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 50(2), pages 445-79, June. [Downloadable!] (restricted)
  7. Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank. [Downloadable!]
  8. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July. [Downloadable!] (restricted)
  9. Raghuram G. Rajan & Luigi Zingales, 1994. "What Do We Know About Capital Structure? Some Evidence from International Data," NBER Working Papers 4875, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  10. Bris, Arturo & Koskinen, Yrjö, 2000. "Corporate Leverage and Currency Crises," Working Paper Series in Economics and Finance 367, Stockholm School of Economics, revised 02 Jul 2001. [Downloadable!]
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  11. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December. [Downloadable!] (restricted)
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  12. Jorion, Philippe, 1991. "The Pricing of Exchange Rate Risk in the Stock Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 26(03), pages 363-376, September. [Downloadable!]
  13. Allen, Franklin & Gale, Douglas, 2000. "Optimal currency crises," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 177-230, December. [Downloadable!] (restricted)
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  14. Roberto Chang & Andres Velasco, 1998. "Financial Crises in Emerging Markets," NBER Working Papers 6606, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  16. Adler, Michael & Dumas, Bernard, 1983. " International Portfolio Choice and Corporation Finance: A Synthesis," Journal of Finance, American Finance Association, vol. 38(3), pages 925-84, June. [Downloadable!] (restricted)
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  18. Hodder, James E., 1982. "Exposure to exchange-rate movements," Journal of International Economics, Elsevier, vol. 13(3-4), pages 375-386, November. [Downloadable!] (restricted)
  19. Johnson, Simon & Boone, Peter & Breach, Alasdair & Friedman, Eric, 2000. "Corporate governance in the Asian financial crisis," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 141-186. [Downloadable!] (restricted)
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  20. Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Entorf & Jamin, 2005. "German Exchange Rate Exposure at DAX and Aggregate Level, International Trade, and the Role of Exchange Rate Adjustment Costs," International Finance 0508005, EconWPA. [Downloadable!]
    Other versions:
  2. Prasetyantoko, Agustinus, 2008. "Financing Policies and Firm Vulnerability in Indonesia," MPRA Paper 6533, University Library of Munich, Germany. [Downloadable!]
  3. Timothy Chue & David Cook, 2004. "Sudden Stops and Liability Dollarization: Evidence from East Asian Financial Intermediaries," Econometric Society 2004 Far Eastern Meetings 646, Econometric Society. [Downloadable!]
  4. Jose Luiz Rossi Junior, 2004. "Foreign Exchange exposure, corporate financial policies and the exchange rate regime: Evidence from Brazil," Econometric Society 2004 Latin American Meetings 163, Econometric Society. [Downloadable!]
  5. Júnior, José L. R., 2008. "Exchange Rate Exposure, Foreign Currency Debt and the Use of Derivatives: Evidence from Brazil," Ibmec Working Papers wpe_139, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
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