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What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?

Author

Listed:
  • Sebnem Kalemli-Ozcan

    (University of Maryland, CEPR, and NBER)

  • Herman Kamil

    (Ministry of Finance, Uruguay)

  • Carolina Villegas-Sanchez

    (ESADE–Universitat Ramon Llull)

Abstract

We quantify the effects of lending and balance sheet channels on corporate investment during large devaluations. We find that if currency crises are accompanied by banking crises, domestic exporters holding unhedged foreign currency debt decrease investment while foreign exporters with better access to credit increase investment despite their unhedged foreign currency debt. We do not find such a differential effect under pure currency crises. Using firm-bank matched data during the global financial crisis, we showthat both domestic and foreign-owned firms experienced a decline in bank credit from affected banks; however, foreign-owned firms substituted the lost credit.

Suggested Citation

  • Sebnem Kalemli-Ozcan & Herman Kamil & Carolina Villegas-Sanchez, 2016. "What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 756-769, October.
  • Handle: RePEc:tpr:restat:v:98:y:2016:i:4:p:756-769
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    More about this item

    Keywords

    Foreign ownership; twin crises; exports; short-term dollar debt; investment;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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