Corporate Leverage, Bankruptcy, and Output Adjustment in Post-Crisis East Asia

29 Pages Posted: 15 Feb 2006  

Se-Jik Kim

International Monetary Fund (IMF)

Date Written: October 1999

Abstract

Different levels of corporate leverage are used in this paper to help explain the wide range of post-crisis output adjustment across East Asia. In the model developed here, highly leveraged firms facing a cutoff of capital inflows are threatened by bankruptcy. These firms respond by eliminating investment and selling their capital goods-at a discount-to try to stay afloat. Lower investment and wasteful capital sales shrink the aggregate capital stock, trigger deflationary pressures, and contract overall output. The available data are broadly consistent with the assumptions and predictions of the model.

Keywords: corporate leverage bankruptcy capital sales east Asian crisis output contractions

JEL Classification: E22 E65 G30 O53

Suggested Citation

Kim, Se-Jik, Corporate Leverage, Bankruptcy, and Output Adjustment in Post-Crisis East Asia (October 1999). IMF Working Paper, Vol. , pp. 1-29, 1999. Available at SSRN: https://ssrn.com/abstract=880670

Se-Jik Kim (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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