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Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis

  • Benmelech, Efraim
  • Dvir, Eyal

Does short-term debt increase vulnerability to financial crisis, or does short-term debt reflect – rather than cause – the incipient crisis? We study the role that short-term debt played in the collapse of the East Asian financial sector in 1997–1998. We alleviate concerns about the endogeneity of short-term debt by using long-term debt obligations that matured during the crisis. We find that debt obligations issued at least three years before the crisis had a negative, albeit sometimes insignificant, effect on the probability of failure. Our results are consistent with the view that short-term debt reflects, rather than causes, distress in financial institutions.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 89 (2013)
Issue (Month): 2 ()
Pages: 485-494

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Handle: RePEc:eee:inecon:v:89:y:2013:i:2:p:485-494
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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