Did International Debt Sink the Banks of Asia?

Abtstract: In this study, we examine firm level performance of financial institutions in emerging East Asian nations during the financial crisis of 1997-1998. A large fraction of these institutions were closed or nationalized or ceased trading for long periods of time making it impossible to directly measure performance using stock market data. We address this challenge by using limited dependent variable models and selection corrected models. As part of our analysis, we find that a number of factors affect the likelihood of firms going bankrupt in different ways than they affected the stock returns of firms which survived the crisis. We find that international debt exposure negatively impacted firm performance during the crisis and led to higher likelihood that financial intermediaries would be closed or nationalized in significant ways. However, short-term international debt was more associated with the probability that intermediaries would fail, while long-term international debt had a more significant negative impact on the performance of intermediaries that did not fail