Corporate Financial Policies and Performance Around Currency Crises

Abstract

This paper studies firm-level leverage and performance measures before and after a currency crisis has occurred using data from 17 countries. We show that prior to a crisis, companies that are expected to benefit from currency depreciations increase their leverage more than other companies. Profitability and financial fragility ratios display similar patterns. We provide evidence that the Asian crisis is different from the previous European and Latin American ones: in Asia all firms become more fragile after the crisis and their profitability declines and leverage increases further, whereas elsewhere 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