Corporate financial structure and financial stability |
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Authors: | E Philip Davis Mark R Stone |
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Institution: | a Brunel University, Uxbridge, Middlesex, UB8 3PH, UK;b International Monetary Fund, Washington, DC 20431, USA |
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Abstract: | Drawing on a unique dataset of flow-of funds and balance sheet data, this paper analyzes the impact of financial crises on aggregate corporate financing and expenditure in a range of countries. Investment and inventory contractions are the main contributors to lower GDP growth after crises, with a much greater effect in emerging market countries. The debt–equity ratio is correlated with investment and inventory declines following crises. Econometric analysis suggests that financial crises have a greater impact on expenditure and the financing of corporate sectors in emerging markets than in industrial countries. Industrial countries appear to benefit from a pick-up in bond issuance in the wake of banking crises. Although companies in emerging market countries hold more precautionary liquidity, this is evidently not sufficient to prevent a greater amplitude of response of expenditure to shocks. |
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Keywords: | Corporate finance Financial instability |
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