Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia

Agustinus, Prasetyantoko (2007): Debt Composition and Balance Sheet Effect of Currency Crisis in Indonesia.

Abstract

This paper is concerned with the role of debt composition on the firm-level investment by raising a main question: whether firms with high foreign currency or short maturity debts have less investment following a financial crisis. This paper finds that firms with more dollar debt have significantly less investment due to exchange rate depreciations. Accordingly, the balance sheet effects of exchange rate devaluations undermine the competitiveness of listed firms in Indonesia, so that the effects of crisis have been exacerbated and prolonged through corporate balance sheet channel. Firms with higher foreign asset would have less dollar debt, which may be due to their export activities. Another important finding is that firms with majority foreign ownership have less dollar debt. This paper uses 179 listed companies in Jakarta Stock Exchange, with at least 5 consecutive years during 1994 – 2004 as samples of study, and a dynamic panel data or GMM analysis is employed.

• Item Type: MPRA Paper
• Language: English
• Keywords: maturity mismatch, firm investment, balance sheet effect, financial crisis
• Subjects: E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; D - Microeconomics > D9 - Intertemporal Choice > D92 - Intertemporal Firm Choice, Investment, Capacity, and Financing

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