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Corporate Financial Policies and Performance Prior to Currency Crises

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Author Info
Arturo Bris
Yrjö Koskinen
Vicente Pons

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Abstract

Using company level data from 17 countries that have suffered a currency crisis during the past decade, this paper documents that firms have increasing leverage and declining profitability prior to a crisis. After sorting companies into two groups based on their exchange rate beta, we show that companies that benefit from currency depreciations have higher leverage, lower earnings to revenue ratios and lower interest coverage ratios compared to firms that are harmed by currency depreciations. These results are consistent with the recent literature that puts the financial policies and performance of corporations as the central issue in currency crisis.

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Publisher Info
Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 386.

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Date of creation: 01 Oct 2001
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Handle: RePEc:wdi:papers:2001-386

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Related research
Keywords: currency crisis; corporate leverage; capital structure; profitability; exchange rates;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
G3 - Financial Economics - - Corporate Finance and Governance

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    Other versions:
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    Other versions:
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    Other versions:
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    Other versions:
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  19. Allayannis, George & Brown, Gregory W. & Klapper, Leora F., 2001. "Exchange rate risk management : evidence from East Asia," Policy Research Working Paper Series 2606, The World Bank. [Downloadable!]
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