NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?

Sebnem Kalemli-Ozcan, Herman Kamil, Carolina Villegas-Sanchez

NBER Working Paper No. 16528
Issued in November 2010
NBER Program(s):   EFG   IFM   ITI

We quantify the effects of the lending and balance sheet channels on corporate investment, by comparing the performance of foreign-owned exporters to that of domestic during two types of financial crises: "currency" and "twin." A currency crisis involves a depreciated currency, whereas a twin crisis is a combination of banking and currency crises. Our measure of balance sheet weakness is based on maturity and currency mismatches between assets and liabilities. During a twin crisis, a 1 percent worsening of the balance sheet translates into a 13 percent decline in investment by domestic exporters relative to foreign-owned exporters, while the latter increase investment by 5 percent in spite of the credit crunch. There is no difference in investment rates between the two set of exporters under a currency crisis, although the deterioration of their balance-sheet is similar. The results suggest a key role for illiquidity in hindering investment in the aftermath of crises.

download in pdf format
   (599 K)

email paper

A non-technical summary of this paper is available in the April 2011 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (599 K) or via email.

This paper was revised on December 21, 2012

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16528

Users who downloaded this paper also downloaded these:
Brander, Du, and Hellmann w16521 The Effects of Government-Sponsored Venture Capital: International Evidence
Cohen, Malloy, and Pomorski w16454 Decoding Inside Information
Acharya, Baghai, and Subramanian w16484 Labor Laws and Innovation
Autor, Manning, and Smith w16533 The Contribution of the Minimum Wage to U.S. Wage Inequality over Three Decades: A Reassessment
Jordà, Schularick, and Taylor w16567 Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us