The Impact of Foreign Liabilities on Small Firms: Firm-Level Evidence from the Korean Crisis [report]

Yun Jung Kim, Linda Tesar, Jing Zhang
2012 unpublished
JEL classification: F32 F34 E44 Keywords: Financial crisis Firm-level data Balance-sheet effects Korean economy Using Korean firm-level data on publicly-listed and privately-held firms together with firm exit data, we find strong evidence that holdings of foreign-currency denominated debt negatively affected the economic performance of small firms during the 1997-98 crisis. The large exchange rate depreciation that occurred during the crisis resulted in a decline in net worth for firms with
more » ... for firms with foreign-currency denominated debt on their balance sheets. Small firms with more short-term foreign debt were more likely to declare bankruptcy. Conditional on surviving the crisis, small firms that had more short-term foreign debt experienced larger declines in sales. The exit (bankruptcy) margin accounts for a large fraction of small firms' adjustment during the crisis.
doi:10.3386/w17756 fatcat:vm3qk2tokvdy7nm3wfhnzzzbba