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Corporate Financial Policies and Performance Around Currency Crises

  • Arturo Bris
  • Yrjo Koskinen
  • Vicente Pons-Sanz

Using data from 20 countries that have suffered a currency crisis, this paper studies firm-level leverage and performance before and after a crisis has occurred. First we provide some evidence of increasing leverage both before and after a crisis. We show that, in the years preceding a currency crisis, companies that benefit from currency depreciations increase their leverage more than companies that are harmed by currency depreciations. These findings do not hold for countries with either floating exchange rates or currency boards. We argue that increasing leverage is a sign that some firms behave strategically towards governments that lack commintment mechanisms not to devalue their currencies. We also provide evidence that the Asian crisis is different from the previous European and Latin American ones: in Asia firms become more fragile after the crisis and their profitability declines further, whereas in Europe and Latin America there are clear signs of recovery after a crisis has occurred.

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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2563.

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Date of creation: 01 Oct 2001
Date of revision: 01 Oct 2008
Handle: RePEc:ysm:somwrk:amz2563
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  19. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis?," Temi di discussione (Economic working papers) 343, Bank of Italy, Economic Research and International Relations Area.
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