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The impact of foreign liabilities on small firms: Firm-level evidence from the Korean crisis

Yun Jung Kim (), Linda L. Tesar and Jing Zhang

Journal of International Economics, 2015, vol. 97, issue 2, 209-230

Abstract: Using Korean firm-level data on publicly-listed and privately-held firms together with firm exit data, we find strong evidence that holdings of foreign-currency denominated debt negatively affected the economic performance of small firms during the 1997–98 crisis. The large exchange rate depreciation that occurred during the crisis resulted in a decline in net worth for firms with foreign-currency denominated debt on their balance sheets. Small firms with more short-term foreign debt were more likely to declare bankruptcy. Conditional on surviving the crisis, small firms that had more short-term foreign debt experienced larger declines in sales. The exit (bankruptcy) margin accounts for a large fraction of small firms' adjustment during the crisis.

Keywords: Financial crisis; Firm-level data; Balance-sheet effects; Korean economy (search for similar items in EconPapers)
JEL-codes: E44 F32 F34 (search for similar items in EconPapers)
Date: 2015
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Related works:
Working Paper: The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis (2012) Downloads
Working Paper: The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:97:y:2015:i:2:p:209-230

DOI: 10.1016/j.jinteco.2015.05.006

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