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Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia

  • Agustinus Prasetyantoko

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS : UMR5824 - Université Lumière - Lyon II - Ecole Normale Supérieure Lettres et Sciences Humaines)

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.

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Paper provided by HAL in its series Post-Print with number halshs-00134223.

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Date of creation: Dec 2006
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Publication status: Published - Presented, The Japan Economic Policy Association 5th International Conference, 2006, Tokyo, Japan
Handle: RePEc:hal:journl:halshs-00134223
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00134223/en/
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  1. 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.
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