Corporate Financial Policies and Performance Around Currency Crises

60 Pages Posted: 31 Oct 2001

See all articles by Arturo Bris

Arturo Bris

IMD International; European Corporate Governance Institute (ECGI); Yale University - International Center for Finance

Yrjo Koskinen

Haskayne School of Business, University of Calgary

Vicente Pons-Sanz

Yale School of Management

Date Written: March 2002

Abstract

Using data from 20 countries that have suffered a currency crisis, this paper studies firm-level leverage and performance before and after a crisis has occurred. First we provide some evidence of increasing leverage both before and after a crisis. We show that, in the years preceding a currency crisis, companies that benefit from currency depreciations increase their leverage more than companies that are harmed by currency depreciations. These findings do not hold for countries with either floating exchange rates or currency boards. We argue that increasing leverage is a sign that some firms behave strategically towards governments that lack commintment mechanisms not to devalue their currencies. We also provide evidence that the Asian crisis is different from the previous European and Latin American ones: in Asia firms become more fragile after the crisis and their profitability declines further, whereas in Europe and Latin America there are clear signs of recovery after a crisis has occurred.

Keywords: Currency Crises, Corporate Leverage, Capital Structure, Profitability, Exchange Rates

JEL Classification: F3, F4, G3

Suggested Citation

Bris, Arturo and Koskinen, Yrjo J and Pons-Sanz, Vicente Pascual, Corporate Financial Policies and Performance Around Currency Crises (March 2002). Yale ICF Working Paper No. 00-61. Available at SSRN: https://ssrn.com/abstract=288430 or http://dx.doi.org/10.2139/ssrn.288430

Arturo Bris (Contact Author)

IMD International ( email )

Ch. de Bellerive 23
P.O. Box 915
CH-1001 Lausanne
Switzerland

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Yale University - International Center for Finance ( email )

Box 208200
New Haven, CT 06520
United States

Yrjo J Koskinen

Haskayne School of Business, University of Calgary ( email )

SH 154, 2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
+1-403-220-5540 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/yrjo-koskinen

Vicente Pascual Pons-Sanz

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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