What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?

Kalemli-Özcan, Sebnem, Herman Kamil and Carolina Villegas-Sanchez ()
Authors registered in the RePEc Author Service: Sebnem Kalemli-Ozcan

No 8543, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We provide evidence on the real effects of credit supply shocks utilizing a new firm-level database from six Latin American countries between 1990 to 2005. Holding creditworthiness constant through foreign currency debt exposure, we compare investment undertaken by domestic exporters to that of foreign-owned exporters, where the latter's exposure to the liquidity shock is lower. We find that foreign-owned exporters increase investment by 15 percentage points relative to domestic exporters only when the currency crisis occurs simultaneously with a banking crisis. These findings suggest that the key factor hindering investment during financial crises is the decline in credit supply.

Keywords: Foreign ownership; Twin crisis; Exports; Short-term dollar debt; Bank lending; Growth (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 O16 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
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Citations: View citations in EconPapers (13)

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Working Paper: What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks? (2010)
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