An empirical and institutional examination of post-crisis capital flows—Thailand case

In this paper, we developed and estimated a model of the Thai firm during the crisis. Our results indicate that firms with the highest debt-equity ratios suffered the steepest declines in earnings per share during the crisis from the financial distressed costs. We take this result as strong evidence for the credit channel. Surprisingly, firms with the largest market capitalizations suffered more than the smaller firms owing to their capital structure and financial leverage effect. We also witness asymmetric impact between the industries—exporters, importers and intermediate. We take this as evidence of different scale-effects on different industries, a feature that we do not explicitly model. In other words, the production effect is more pronouncing in import related industries than the export-oriented one. Note that firms that import intermediate goods also suffered greatly from the crisis from both credit and production channels. Taken together, our overall results indicate that the crisis damaged the earnings per share of firms more on credit channels than the production channels. There exists a peculiar tradeoff between benefits from currency devaluation to promote exports and severe adverse impact on both credit channel and asymmetric impact on production channel.