Corporate Leverage and Currency Crises

Loading...
Thumbnail Image
Penn collection
Finance Papers
Degree type
Discipline
Subject
Finance
Finance and Financial Management
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Bris, Arturo
Koskinen, Yrjo
Contributor
Abstract

Currency crises can arise because it is optimal to bail out financially distressed exporting firms through a currency depreciation. Exporting firms will not undertake profitable investments when high leverage causes debt overhang problems. A currency depreciation increases the profitability of new investments when revenues are foreign-currency denominated and domestic-currency costs are nominally rigid. Ex ante, currency depreciation leads to excessive investment in risky projects even if safer, more valuable projects are available. However, currency depreciation is optimal ex ante if the risky projects have higher expected returns and if firms must rely on debt financing because of underdeveloped equity markets.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2002-01-01
Journal title
Journal of Financial Economics
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
At the time of publication, author Yrjo Koskinen was affiliated with the Stockholm School of Economics, Stockholm, Sweden. Currently, he is a faculty member at the Wharton School at the University of Pennsylvania.
Recommended citation
Collection