IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v38y2021ics1544612319302600.html
   My bibliography  Save this article

Financial contagion and the role of firm characteristics

Author

Listed:
  • Kara, Alper
  • Hacihasanoglu, Yavuz Selim
  • Unalmis, Deren

Abstract

Using the Borsa Istanbul sector indices, this study shows that the bi-directional interactions between banking sector and non-financial corporate sectors intensify in high-volatility periods. The findings differ across sub-sectors. For example, during times of financial stress, banks have more interaction with the sectors that produce to the domestic market and that have less access to international finance, as opposed to the exporting sectors and sectors with external integration. Taking into account firm-level balance sheet characteristics, further suggest that, FX balance sheet mismatch, low export ratio, high leverage ratio and trade debt strengthen the degree of financial contagion.

Suggested Citation

  • Kara, Alper & Hacihasanoglu, Yavuz Selim & Unalmis, Deren, 2021. "Financial contagion and the role of firm characteristics," Finance Research Letters, Elsevier, vol. 38(C).
    • Handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319302600
    DOI: 10.1016/j.frl.2019.101389
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612319302600
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2019.101389?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Caballero, Julián & Fernández, Andrés & Park, Jongho, 2019. "On corporate borrowing, credit spreads and economic activity in emerging economies: An empirical investigation," Journal of International Economics, Elsevier, vol. 118(C), pages 160-178.
    2. Nicoletta Batini & Paul Levine, 2008. "Monetary and Fiscal Rules in an Emerging Small Open Economy," CDMA Conference Paper Series 0810, Centre for Dynamic Macroeconomic Analysis.
    3. Flavin, Thomas J. & Panopoulou, Ekaterini & Unalmis, Deren, 2008. "On the stability of domestic financial market linkages in the presence of time-varying volatility," Emerging Markets Review, Elsevier, vol. 9(4), pages 280-301, December.
    4. 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.
    5. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
    6. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    7. Inci, A. Can & Li, H.C. & McCarthy, Joseph, 2011. "Financial contagion: A local correlation analysis," Research in International Business and Finance, Elsevier, vol. 25(1), pages 11-25, January.
    8. Andrés Fernández & Adam Gulan, 2015. "Interest Rates, Leverage, and Business Cycles in Emerging Economies: The Role of Financial Frictions," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(3), pages 153-188, July.
    9. Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005. "Currency Mismatches, Balance-Sheet Effects and Hedging in Chilean Non-Financial Corporations," Research Department Publications 4387, Inter-American Development Bank, Research Department.
    10. Luis Felipe Céspedes & Roberto Chang & Andrés Velasco, 2004. "Balance Sheets and Exchange Rate Policy," American Economic Review, American Economic Association, vol. 94(4), pages 1183-1193, September.
    11. Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank.
    12. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," The World Bank Research Observer, World Bank, vol. 15(1), pages 23-46, February.
    13. Fernández, Andrés & Gulan, Adam, 2012. "Interest rates and business cycles in emerging economies: the role of financial frictions," Bank of Finland Research Discussion Papers 23/2012, Bank of Finland.
    14. Kim, Yun Jung & Tesar, Linda L. & Zhang, Jing, 2015. "The impact of foreign liabilities on small firms: Firm-level evidence from the Korean crisis," Journal of International Economics, Elsevier, vol. 97(2), pages 209-230.
    15. Panizza, Ugo & Asis, Gonzalo & Alfaro, Laura & Chari, Anusha, 2017. "Lessons Unlearned? Corporate Debt in Emerging Markets," CEPR Discussion Papers 12038, C.E.P.R. Discussion Papers.
    16. James Morley, 2016. "Macro-Finance Linkages," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 698-711, September.
    17. Gravelle, Toni & Kichian, Maral & Morley, James, 2006. "Detecting shift-contagion in currency and bond markets," Journal of International Economics, Elsevier, vol. 68(2), pages 409-423, March.
    18. Marcelin, Isaac & Mathur, Ike, 2016. "Financial sector development and dollarization in emerging economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 20-32.
    19. Mr. Alejandro Justiniano Espigares & Mr. Selim A Elekdag & Mr. Ivan Tchakarov, 2005. "An Estimated Small Open Economy Model of the Financial Accelerator," IMF Working Papers 2005/044, International Monetary Fund.
    20. Mr. Magnus Saxegaard & Rahul Anand & Mr. Shanaka J Peiris, 2010. "An Estimated Model with Macrofinancial Linkages for India," IMF Working Papers 2010/021, International Monetary Fund.
    21. Mr. Adolfo Barajas & Mr. Armando Méndez Morales, 2003. "Dollarization of Liabilities: Beyond the Usual Suspects," IMF Working Papers 2003/011, International Monetary Fund.
    22. Nobuhiro Kiyotaki & John Moore, 2002. "Balance-Sheet Contagion," American Economic Review, American Economic Association, vol. 92(2), pages 46-50, May.
    23. Peter Lindner & Sung Eun Jung, 2014. "Corporate Vulnerabilities in India and Banks' Loan Performance," IMF Working Papers 2014/232, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hardy, Bryan, 2023. "Foreign currency borrowing, balance sheet shocks, and real outcomes," Journal of International Money and Finance, Elsevier, vol. 139(C).
    2. Ben Zeev, Nadav, 2019. "Global credit supply shocks and exchange rate regimes," Journal of International Economics, Elsevier, vol. 116(C), pages 1-32.
    3. Ben Zeev, Nadav, 2017. "Capital controls as shock absorbers," Journal of International Economics, Elsevier, vol. 109(C), pages 43-67.
    4. Caballero, Julián & Fernández, Andrés & Park, Jongho, 2019. "On corporate borrowing, credit spreads and economic activity in emerging economies: An empirical investigation," Journal of International Economics, Elsevier, vol. 118(C), pages 160-178.
    5. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    6. Kim, Yun Jung, 2016. "Foreign currency exposure and balance sheet effects: A firm-level analysis for Korea," Emerging Markets Review, Elsevier, vol. 26(C), pages 64-79.
    7. Caballero, Julián, 2021. "Corporate dollar debt and depreciations: All’s well that ends well?," Journal of Banking & Finance, Elsevier, vol. 130(C).
    8. Alter, Adrian & Elekdag, Selim, 2020. "Emerging market corporate leverage and global financial conditions," Journal of Corporate Finance, Elsevier, vol. 62(C).
    9. Vasco J. Gabriel & Paul Levine & Bo Yang, 2023. "Partial dollarization and financial frictions in emerging economies," Review of International Economics, Wiley Blackwell, vol. 31(2), pages 609-651, May.
    10. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    11. Julián Caballero & Andres Fernandez & Jongho Park, 2016. "On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation," IDB Publications (Working Papers) 95296, Inter-American Development Bank.
    12. Valentina Bruno & Hyun Song Shin, 2020. "Currency Depreciation and Emerging Market Corporate Distress," Management Science, INFORMS, vol. 66(5), pages 1935-1961, May.
    13. Stephanie Prat, 2007. "The Relevance of Currency Mismatch Indicators: an Analysis Through Determinants of Emerging Market Spreads," Economie Internationale, CEPII research center, issue 111, pages 101-122.
    14. Bryan Hardy & Felipe Saffie, 2019. "From carry trades to trade credit: financial intermediation by non-financial corporations," BIS Working Papers 773, Bank for International Settlements.
    15. repec:zbw:bofrdp:2016_022 is not listed on IDEAS
    16. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011. "The relationship between investment and large exchange rate depreciations in dollarized economies," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1265-1279.
    17. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2021. "Effects of foreign currency debt on investment of the firms in emerging economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4993-5004, October.
    18. José Antonio Morales Castro & Francisco López-Herrera, 2021. "Ganancias cambiarias en empresas mexicanas y variables fundamentales y económicas," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(2), pages 1-21, Abril - J.
    19. Sebnem Kalemli-Ozcan & Xiaoxi Liu & Ilhyock Shim, 2021. "Exchange Rate Fluctuations and Firm Leverage," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 69(1), pages 90-121, March.
    20. José Antonio Morales Castro & Francisco López-Herrera, 2021. "Ganancias cambiarias en empresas mexicanas y variables fundamentales y económicas," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(2), pages 1-21, Abril - J.
    21. Demirkılıç, Serkan, 2021. "Balance sheet effects of foreign currency debt and real exchange rate on corporate investment: evidence from Turkey," Emerging Markets Review, Elsevier, vol. 47(C).

    More about this item

    Keywords

    Financial contagion; Stock market; Sector indices; Balance sheet characteristics of firms; Emerging markets;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:38:y:2021:i:c:s1544612319302600. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.