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

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  • Yun Jung Kim
  • Linda Tesar
  • Jing Zhang

Abstract

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 firms' 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.

Suggested Citation

  • Yun Jung Kim & Linda Tesar & Jing Zhang, 2012. "The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis," NBER Working Papers 17756, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17756
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    Cited by:

    1. Liliana Varela & Juliana Salomao, 2016. "Exchange Rate Exposure and Firm Dynamics," Working Papers 2016-278-05, Department of Economics, University of Houston.
    2. Małgorzata Skibińska, 2018. "Transmission of monetary policy and exchange rate shocks under foreign currency lending," Post-Communist Economies, Taylor & Francis Journals, vol. 30(4), pages 506-525, July.
    3. Jesse Schreger & Wenxin Du, 2014. "Sovereign Risk, Currency Risk, and Corporate Balance Sheets," Working Paper 209056, Harvard University OpenScholar.
    4. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2017. "Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks," CESifo Working Paper Series 6700, CESifo Group Munich.
    5. Stefan Avdjiev & Valentina Bruno & Catherine Koch, 2018. "The dollar exchange rate as a global risk factor: evidence from investment," BIS Working Papers 695, Bank for International Settlements.
    6. Kim, Yun Jung, 2016. "Foreign currency exposure and balance sheet effects: A firm-level analysis for Korea," Emerging Markets Review, Elsevier, vol. 26(C), pages 64-79.
    7. Lorena Keller, 2018. "Prudential Capital Controls and Risk Misallocation: Bank Lending Channel," 2018 Meeting Papers 129, Society for Economic Dynamics.
    8. Spiros Bougheas & Hosung Lim & Simona Mateut & Paul Mizen & Cihan Yalcin, "undated". "Foreign Currency Borrowing, Exports and Firm Performance: Evidence from a Currency Crisis," Working Papers wp16, South East Asian Central Banks (SEACEN) Research and Training Centre.

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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