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Do Phoenix miracles exist ? firm-level evidence from financial crises

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  • Ayyagari, Meghana
  • Demirguc-Kunt, Asli
  • Maksimovic, Vojislav

Abstract

This paper provides empirical evidence on firm recoveries from financial system collapses in developing countries (systemic sudden stops episodes), and compares them with the experience in the United States in the 2008 financial crisis. Prior research found that economies recover from systemic sudden stop episodes before the financial sector. These recoveries are called Phoenix miracles, and the research questioned the role of the financial system in recovery. Although an average of the macro data across a sample of systemic sudden stop episodes over the 1990s appears consistent with the notion of Phoenix recoveries, closer inspection reveals heterogeneity of responses across the countries, with only a few countries fitting the pattern. Micro data show that across countries, only a small fraction (less than 31 percent) of firms follow a pattern of recovery in sales without a recovery in external credit, and even these firms have access to external sources of cash. The experience of firms in the United States during the 2008 financial crisis also suggests no evidence of credit-less recoveries. An examination of the dynamics of firms'financing, investment and payout policies during recovery periods shows that far from being constrained, the firms in the sample are able to access long-term financing, issue equity, and significantly expand their cash holdings.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5799.

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Date of creation: 01 Sep 2011
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Handle: RePEc:wbk:wbrwps:5799

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Keywords: Debt Markets; Access to Finance; Bankruptcy and Resolution of Financial Distress; Emerging Markets; Economic Theory&Research;

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  1. Fabian Valencia & Luc Laeven, 2008. "Systemic Banking Crises," IMF Working Papers 08/224, International Monetary Fund.
  2. Miron, Jeffrey A. & Zeldes, Stephen P., 1989. "Production, sales, and the change in inventories : An identity that doesn't add up," Journal of Monetary Economics, Elsevier, Elsevier, vol. 24(1), pages 31-51, July.
  3. Hoyt Bleakley & Kevin Cowan, 2005. "Maturity Mismatch and Financial Crises: Evidence from Emerging Market Corporations," Research Department Publications, Inter-American Development Bank, Research Department 4433, Inter-American Development Bank, Research Department.
  4. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, Elsevier, vol. 97(3), pages 470-487, September.
  5. Murillo Campello & Erasmo Giambona & John R. Graham & Campbell R. Harvey, 2011. "Liquidity Management and Corporate Investment During a Financial Crisis," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 24(6), pages 1944-1979.
  6. Heitor Almeida & Murillo Campello & Bruno Laranjeira & Scott Weisbenner, 2009. "Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis," NBER Working Papers 14990, National Bureau of Economic Research, Inc.
  7. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2006. "Phoenix Miracles in Emerging Markets: Recovering without Credit from Systemic Financial Crises," Research Department Publications, Inter-American Development Bank, Research Department 4474, Inter-American Development Bank, Research Department.
  8. Eric J. Bartelsman & Zoltan Wolf, 2009. "Forecasting Aggregate Productivity using Information from Firm-Level Data," Tinbergen Institute Discussion Papers 09-043/3, Tinbergen Institute.
  9. Dasgupta, Sudipto & Noe, Thomas H. & Wang, Zhen, 2011. "Where Did All the Dollars Go? The Effect of Cash Flows on Capital and Asset Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 46(05), pages 1259-1294, October.
  10. Guillermo A. Calvo & Alejandro Izquierdo & Luis Fernando Mejía, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," IDB Publications 6516, Inter-American Development Bank.
  11. Hovakimian, Armen & Hovakimian, Gayane & Tehranian, Hassan, 2004. "Determinants of target capital structure: The case of dual debt and equity issues," Journal of Financial Economics, Elsevier, Elsevier, vol. 71(3), pages 517-540, March.
  12. Geert Bekaert & Campbell R. Harvey & Christian Lundblad & Stephan Siegel, 2004. "Global Growth Opportunities and Market Integration," NBER Working Papers 10990, National Bureau of Economic Research, Inc.
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