Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia
The fashionable analysis of financial crisis accentuates on the role of corporate debt composition bearingthe maturity and currency mismatch. Using 226 listed companies in Jakarta Stock Exchange, this paperinvestigates the role of currency and maturity mismatches in propagating the negative effects of currency depreciation. By nature, depreciation could enhance export performance by its “competitiveness effect”, since price of goods should be cheaper. Nevertheless, due to the effects of maturity and currency mismatch, depreciation decreases net worth of the firms through “balance sheet effect”. This paperfocuses on the impact of currency depreciation on firm-level investment. By panel data analysis, we findthat firms with more dollar debt invest less in both long and short-term investment. Unfortunately, thispaper fails to provide empirical evidence on the impact of currency depreciation on firm-level investmentand other firm performance. However, it seems that the extreme currency depreciation followed by financial and economic crisis destroys structurally investment condition in Indonesia. Therefore, even though currency depreciation is not related significantly to firm-level investment, it is likely not true that the depreciation does not matter on firm as well as economic performance.
|Date of creation:||Dec 2006|
|Publication status:||Published in The Japan Economic Policy Association 5th International Conference, Dec 2006, Tokyo, Japan. 2006|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00134223|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2001.
"A Corporate Balance-Sheet Approach to Currency Crises,"
Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP)
01.14, Université de Lausanne, Faculté des HEC, DEEP.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "A corporate balance-sheet approach to currency crises," Journal of Economic Theory, Elsevier, vol. 119(1), pages 6-30, November.
- Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "A Corporate Balance Sheet Approach to Currency Crises," CEPR Discussion Papers 3092, C.E.P.R. Discussion Papers.
- Philippe Aghion & Philippe Bacchetta & Abhijit Banerjee, 2001. "A corporate Balance-Sheet Approach to Currency Crises," Working Papers 01.05, Swiss National Bank, Study Center Gerzensee.
- repec:oxf:wpaper:1998-w09 is not listed on IDEAS
- George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
- Harris, John R. & Schiantarelli, Fabio & Siregar, Miranda G., 1992. "How financial liberalization in Indonesia affected firms'capital structure and investment decisions," Policy Research Working Paper Series 997, The World Bank.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
98-03, C.V. Starr Center for Applied Economics, New York University.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
- Julio de Brun & Eduardo Barbieri & Nestor Gandelman, 2002. "Investment Equations and Financial Restrictions at Firm Level: The Case of Uruguay," Research Department Publications 3155, Inter-American Development Bank, Research Department.
- Frederic S. Mishkin, 1999. "Global Financial Instability: Framework, Events, Issues," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 3-20, Fall.
- Bronwyn H. Hall & Jacques Mairesse & Benoit Mulkay, 1998.
"Firm-level investment in France an the United States: an exploration of what we have learned in twenty years,"
IFS Working Papers
W98/10, Institute for Fiscal Studies.
- Jacques Mairesse & Bronwyn H. Hall & Benoît Mulkay, 1999. "Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Annals of Economics and Statistics, GENES, issue 55-56, pages 27-67.
- Jacques Mairesse & Bronwyn H. Hall & Benoit Mulkay, 1999. "Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," NBER Working Papers 7437, National Bureau of Economic Research, Inc.
- Hall, Bronwyn H. & Mairesse, Jacques & Mulkay, Benoit, 1998. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Department of Economics, Working Paper Series qt5tp4r5nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Hall, B. & Mairesse, J. & Mulkay, B., 1998. "Firm-Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Economics Papers 143, Economics Group, Nuffield College, University of Oxford.
- Bronwyn H. Hall & Jacques Mairesse & Benoit Mulkay & Jacques Mairesse, 1999. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Econometrics 9902001, EconWPA.
- Bronwyn H. Hall, Jacques Mairesse and Benoit Mulkay., 1998. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Economics Working Papers 98-261, University of California at Berkeley.
- Mihir A. Desai & C. Fritz Foley & Kristin J. Forbes, 2004. "Financial Constraints and Growth: Multinational and Local Firm Responses to Currency Crises," NBER Working Papers 10545, National Bureau of Economic Research, Inc.
- Brad Setser & Nouriel Roubini & Christian Keller & Mark Allen & Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 02/210, International Monetary Fund.
- Froot, Kenneth A & Scharfstein, David S & Stein, Jeremy C, 1993.
" Risk Management: Coordinating Corporate Investment and Financing Policies,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1629-58, December.
- Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1992. "Risk Management: Coordinating Corporate Investment and Financing Policies," NBER Working Papers 4084, National Bureau of Economic Research, Inc.
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003.
"Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis,"
Emerging Markets Review,
Elsevier, vol. 4(4), pages 450-471, December.
- Ignacio Lobato & Sangeeta Pratap & Alejandro Somuano, 2004. "Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis," Working Papers 0405, Centro de Investigacion Economica, ITAM.
- Sangeeta Pratap & Alejandro Somuano, . "Debt Composition and Balance Sheet Effect of Exchange and Interest Rate Volatility in Mexico," DCBSLA Series 4, Inter-American Development Bank, Research Department.
- 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.
- Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998.
"Paper tigers? A model of the Asian crisis,"
9822, Federal Reserve Bank of New York.
- Philip Lowe & Thomas Rohling, 1993. "Agency Costs, Balance Sheets and the Business Cycle," RBA Research Discussion Papers rdp9311, Reserve Bank of Australia.
- Francois HERMET, 2003. "CURRENCY CRISIS AND BALANCE SHEET CHANNEL EFFECT. The Korean Experience," Economics Bulletin, AccessEcon, vol. 6(12), pages 1-12.
- Forbes, Kristin, 2002.
"How Do Large Depreciations Affect Firm Performance?,"
4379-02, Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
- Kristin J. Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," NBER Working Papers 9095, National Bureau of Economic Research, Inc.
- repec:ebl:ecbull:v:6:y:2003:i:12:p:1-12 is not listed on IDEAS
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
- Martins, Betina Guimarães Dodsworth & Pinto, Rodrigo Ribeiro Antunes & Bonomo, Marco Antônio Cesar, 2004.
"Debt composition and exchange rate balance sheet effects in Brazil: A firm level analysis,"
Economics Working Papers (Ensaios Economicos da EPGE)
535, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Bonomo, Marco & Martins, Betina & Pinto, Rodrigo, 2003. "Debt composition and exchange rate balance sheet effect in Brazil: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 368-396, December.
- S. Fukuda-Parr, 2003. "Editor's Introduction," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 4(3), pages 323-324.
- Benavente, Jose Miguel & Johnson, Christian A. & Morande, Felipe G., 2003. "Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile," Emerging Markets Review, Elsevier, vol. 4(4), pages 397-416, December.
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00134223. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.