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Investment Dynamics in the Aftermath of the A sian Financial Crisis: A Firm‐Level Analysis
Author(s) -
Coulibaly Brahima,
Millar Jonathan
Publication year - 2011
Publication title -
international finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.458
H-Index - 39
eISSN - 1468-2362
pISSN - 1367-0271
DOI - 10.1111/j.1468-2362.2011.01284.x
Subject(s) - financial crisis , restructuring , economics , investment (military) , monetary economics , balance sheet , panel data , financial system , macroeconomics , finance , politics , political science , law , econometrics
Using panel data encompassing nearly 3,750 firms from 1991 to 2005, we study the dynamics of corporate fixed investment in the emerging Asian economies that were most affected by the financial crisis of the late 1990s. Our analysis indicates that post‐crisis corporate fixed investment rates have fallen by about 12 percentage points relative to pre‐crisis levels, a decline that is remarkably broad‐based across industries and countries. We explore the factors behind this lower post‐crisis investment. Although weaker post‐crisis fundamentals contributed to the decline, the most important factor appears to be balance sheet restructuring in the aftermath of the excessive debt accumulation and excess investment that occurred during the run‐up to the crisis. The drag on investment from this adjustment remained significant through 2005 – nearly a decade after the financial crisis.