Does Short-Term Debt Increase Vulnerability to Crisis? Evidence from the East Asian Financial Crisis
33 Pages Posted: 30 Sep 2011
Date Written: September 2011
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: Suggested Citation