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The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis

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  • Yun Jung Kim

    (University of Michigan)

  • Linda L. Tesar

    (University of Michigan and NBER)

  • Jing Zhang

    (University of Michigan)

Abstract

Using Korean firm-level data on publicly-listed and privately-held firms together with firm exit data, we find strong evidence of the balance-sheet effect for small firms at both the intensive and extensive margins. During the crisis, small firms with more short-term foreign debt are more likely to go bankrupt, and experience larger sales declines conditional on survival. The extensive margin accounts for a large fraction of small firmsÕ adjustment during the crisis. Consistent with many studies in the literature, large firms with larger exposure to foreign debt paradoxically have better performance during the crisis at both the intensive and extensive margin.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers601-625/r620.pdf
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Bibliographic Info

Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 620.

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Length: 47 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mie:wpaper:620

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Web page: http://www.fordschool.umich.edu/rsie/
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Keywords: financial crisis; firm-level data; balance-sheet effects; Korean economy;

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  1. Bonomo, Marco & Martins, Betina & Pinto, Rodrigo, 2003. "Debt composition and exchange rate balance sheet effect in Brazil: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 368-396, December.
  2. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
  3. Carranza, Luis J. & Cayo, Juan M. & Galdon-Sanchez, Jose E., 2003. "Exchange rate volatility and economic performance in Peru: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 472-496, December.
  4. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
  5. Simon Gilchrist & Jae W. Sim, 2007. "Investment during the Korean Financial Crisis: A Structural Econometric Analysis," NBER Working Papers 13315, National Bureau of Economic Research, Inc.
  6. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Papers 6833, National Bureau of Economic Research, Inc.
  7. Benavente, Jose Miguel & Johnson, Christian A. & Morande, Felipe G., 2003. "Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile," Emerging Markets Review, Elsevier, vol. 4(4), pages 397-416, December.
  8. Bayraktar, Nihal & Sakellaris, Plutarchos & Vermeulen, Philip, 2005. "Real versus financial frictions to capital investment," Working Paper Series 0566, European Central Bank.
  9. Aguiar, Mark, 2005. "Investment, devaluation, and foreign currency exposure: The case of Mexico," Journal of Development Economics, Elsevier, vol. 78(1), pages 95-113, October.
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