Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia

Agustinus Prasetyantoko ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper is concerned with the role of debt composition on the firm-level investment by raising a main question: whether firms with high foreign currency or short maturity debts have less investment following a financial crisis. This paper finds that firms with more dollar debt have significantly less investment due to exchange rate depreciations. Accordingly, the balance sheet effects of exchange rate devaluations undermine the competitiveness of listed firms in Indonesia, so that the effects of crisis have been exacerbated and prolonged through corporate balance sheet channel. Firms with higher foreign asset would have less dollar debt, which may be due to their export activities. Another important finding is that firms with majority foreign ownership have less dollar debt. This paper uses 179 listed companies in Jakarta Stock Exchange, with at least 5 consecutive years during 1994 – 2004 as samples of study, and a dynamic panel data or GMM analysis is employed.

Keywords: maturity mismatch; firm investment; balance sheet effect; financial crisis (search for similar items in EconPapers)
JEL-codes: D92 E32 G32 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-sea
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:6501

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