Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis

33 Pages Posted: 30 Sep 2011

See all articles by Efraim Benmelech

Efraim Benmelech

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Eyal Dvir

Charles River Associates (CRA) - Competition Practice

Date Written: September 2011

Abstract

Does short-term debt increase vulnerability to financial crisis, or does short-term debt reflect -- rather than cause -- the incipient crisis? We study the role that short-term debt played in the collapse of the East Asian financial sector in 1997-1998. We alleviate concerns about the endogeneity of short-term debt by using long-term debt obligations that matured during the crisis. We find that debt obligations issued at least three years before the crisis had a negative, albeit sometimes insignificant, effect on the probability of failure. Our results are consistent with the view that short-term debt reflects, rather than causes, distress in financial institutions.

Suggested Citation

Benmelech, Efraim and Dvir, Eyal, Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis (September 2011). NBER Working Paper No. w17468. Available at SSRN: https://ssrn.com/abstract=1935794

Efraim Benmelech (Contact Author)

Northwestern University - Kellogg School of Management ( email )

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Eyal Dvir

Charles River Associates (CRA) - Competition Practice ( email )

200 Clarendon St
Boston, MA 02116
United States
617-425-3699 (Phone)

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