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The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis

  • Yun Jung Kim

    (University of Michigan)

  • Linda L. Tesar

    (University of Michigan and NBER)

  • Jing Zhang

    (University of Michigan)

Using Korean firm-level data on publicly-listed and privately-held firms together with firm exit data, we find strong evidence of the balance-sheet effect for small firms at both the intensive and extensive margins. During the crisis, small firms with more short-term foreign debt are more likely to go bankrupt, and experience larger sales declines conditional on survival. The extensive margin accounts for a large fraction of small firmsÕ adjustment during the crisis. Consistent with many studies in the literature, large firms with larger exposure to foreign debt paradoxically have better performance during the crisis at both the intensive and extensive margin.

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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers601-625/r620.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 620.

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Length: 47 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mie:wpaper:620
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