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Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia

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  • Agustinus, Prasetyantoko

Abstract

This paper is concerned with the role of debt composition on the firm-level investment by raising a main question: whether firms with high foreign currency or short maturity debts have less investment following a financial crisis. This paper finds that firms with more dollar debt have significantly less investment due to exchange rate depreciations. Accordingly, the balance sheet effects of exchange rate devaluations undermine the competitiveness of listed firms in Indonesia, so that the effects of crisis have been exacerbated and prolonged through corporate balance sheet channel. Firms with higher foreign asset would have less dollar debt, which may be due to their export activities. Another important finding is that firms with majority foreign ownership have less dollar debt. This paper uses 179 listed companies in Jakarta Stock Exchange, with at least 5 consecutive years during 1994 – 2004 as samples of study, and a dynamic panel data or GMM analysis is employed.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6501.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:6501

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Keywords: maturity mismatch; firm investment; balance sheet effect; financial crisis;

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References

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  1. Harris, John R. & Schiantarelli, Fabio & Siregar, Miranda G., 1992. "How financial liberalization in Indonesia affected firms'capital structure and investment decisions," Policy Research Working Paper Series 997, The World Bank.
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Cited by:
  1. Santiago Villegas Salazar, 2009. "Evidencia del canal de la hoja de balance a través de la inversión de las empresas colombianas (1995-2007)," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE.

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