THE ROLE OF FIRM SIZE IN CONTROLLING OUTPUT DECLINE DURING THE ASIAN FINANCIAL CRISIS

Hung-Ju Chen and Hsiao-tang Hsu ()
Additional contact information
Hsiao-tang Hsu: Investment Portfolio Research Group, IndyMac Bank

Journal of Economic Development, 2005, vol. 30, issue 2, 103-129

Abstract: This study sets out to develop a simplified risk premium model to explain output decline within the economies of Asia in the immediate aftermath of the Asian financial crisis. Firms are allowed to borrow from both domestic and foreign banks, with the firms¡¯ debts being loosely constrained (at high levels) prior to the crisis (lending boom) but becoming tightly constrained (at low levels) on the outbreak of the crisis (lending bust). The lending rate is a function of the debt-capital ratio; thus if firms have only limited access to the credit market, then they will accumulate less capital and become small firms. Given their lower collateral, small firms face higher risk premiums which will ultimately lead to a much greater reduction in output when a credit crunch suddenly hits. Our model predicts that small firm size will accelerate unanticipated shocks; therefore, output decline will be greater in countries with small firms than in those with large firms.

Keywords: Asian Financial Crisis; Firm Size; Credit Constraints; Risk Premiums (search for similar items in EconPapers)
JEL-codes: E5 F3 F4 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.jed.or.kr/full-text/30-2/J06_718.PDF (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jed:journl:v:30:y:2005:i:2:p:103-129

Access Statistics for this article

Journal of Economic Development is currently edited by Sung Y. Park

More articles in Journal of Economic Development from Chung-Ang Unviersity, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sung Y. Park ().