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Corporate Financial Policies and Performance Prior to Currency Crises

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  • Yrjo Juhani Koskinen

    ()
    (Department of Finance)

  • Arturo Bris

    ()
    (International Center for Finance)

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, while still making positive net investments. 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 deprecations. These results are consistent with the recent literature that puts the financial policies and performance of corporations as the central issue in currency crises.

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Bibliographic Info

Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm187.

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Date of creation: 07 Jul 2001
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Handle: RePEc:ysm:somwrk:ysm187

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Web page: http://icf.som.yale.edu/
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Keywords: currency crises; corporate leverage; capital structure; profitability; exchange rates;

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