Sudden Stops and Liability Dollarization: Evidence from Asia's Financial Intermediaries

Posted: 8 Apr 2008

See all articles by Timothy K. Chue

Timothy K. Chue

Hong Kong Polytechnic University

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics; Hong Kong University of Science & Technology (HKUST) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2008

Abstract

Before the currency crisis of 1997-1998, East Asian financial intermediaries borrowed heavily in international markets. During the crisis, the intermediaries' stock market value declined sharply, and a sizable fraction of the institutions were closed or nationalized. We investigate how the short-term and the foreign-currency nature of the intermediaries' international borrowing contributed to these outcomes. From the impact of long-term international debt on the stock returns of surviving intermediaries, we observe the negative effects of the foreign-currency nature of international debt (liability dollarization). From the impact of short-term international debt on the likelihood of firm failure and on the size of surviving intermediaries' assets and liabilities, we observe the negative effects of the short-term nature of international debt (sudden stops).

Keywords: International Debt, Financial Intermediaries, Liability Dollarization, Sudden Stops, Asian Financial Crisis

JEL Classification: F32, F34, G15, G20

Suggested Citation

Chue, Timothy K. and Cook, David E., Sudden Stops and Liability Dollarization: Evidence from Asia's Financial Intermediaries (April 2008). Pacific-Basin Finance Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1117881

Timothy K. Chue (Contact Author)

Hong Kong Polytechnic University ( email )

School of Accounting & Finance
Hung Hom
Kowloon
Hong Kong
(852) 2766-4995 (Phone)

David E. Cook

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
2538 7614 (Phone)

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