Corporate Financial Structure and Financial Stability

Davis, E. Philip; Stone, Mark

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Corporate Financial Structure and Financial Stability

IMF Working Paper No. 04/124

49 Pages Posted: 15 Feb 2006

See all articles by E. Philip Davis

E. Philip Davis

National Institute of Economic and Social Research (NIESR); Brunel University

Mark Stone

International Monetary Fund (IMF)

Date Written: July 2004

Abstract

This paper uses flow-of-funds and balance sheet data to analyze the impact of financial crises on corporate financing and GDP in a range of countries. Post-crisis GDP contractions are mainly accounted for by declines in investment and inventory and are more severe for emerging market countries. Post-crisis investment and inventory declines are correlated with the corporate debt-equity ratio. Although companies in emerging market countries hold more liquidity, this is not sufficient to prevent a greater response of expenditures to shocks. Industrial countries appear to benefit from an offsetting increase in bond issuance.

Keywords: Corporate finance, financial instability

JEL Classification: E22, E44, G31

Suggested Citation: Suggested Citation

Davis, E. Philip and Stone, Mark, Corporate Financial Structure and Financial Stability (July 2004). IMF Working Paper No. 04/124, Available at SSRN: https://ssrn.com/abstract=878948