An empirical analysis of the factors determining the financial crisis in Asia |
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| Institution: | 1. Faculty of Economics, Howard University, Washington, DC 20059, USA;1. United Nations, Department of Economic and Social Affairs, New York, NY 10017, USA;2. University of St. Gallen, Dufourstrasse 50, 9000 St. Gallen, Switzerland;1. Sonoma State University, Rohnert Park, United States;2. San Francisco State University, San Francisco, United States;1. Georgia Institute of Technology Library, Atlanta, GA, United States;2. Georgia College & State University, Milledgeville, GA, United States;1. Division of Emergency Medicine, Weill Medical College of Cornell University, New York, NY (Dr Gaudio);2. Department of Emergency Medicine, University of Colorado School of Medicine, Aurora, CO (Dr Lemery);3. Wilderness Medical Associates International, Portland, ME (Dr Johnson) |
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| Abstract: | This article tests a hypothesis that the causes of the Asian financial crisis are weaknesses in the balance sheet of financial institutions, high international interest rates, high short-term external debts, excessive loans, and continuing large current account deficits. It also tests a hypothesis regarding the determination of nonperforming bank loans. Empirical tests are carried out with panel data on seven countries in Asia—Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan, and Thailand—for the 1995 through 1997 period. The 3-month LIBOR interest rate and nonperforming loan rates of banks are found to be the major determinants of the Asian financial crisis. The nonperforming bank loan ratios are explained by the corporate leverage ratio. In addition, both the corporate high leverage ratio and LIBOR interest rates are found to significantly affect the outcome of the Asian crisis. Lowering world interest rates and taking the measures of individual Asian countries to reduce nonperforming assets and debt-to-equity ratios would be very effective in preventing reoccurrence of the crisis. |
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