Corporate Performance in the East Asian Financial Crisis

The sharp decline in the once-stellar performance of East Asiancorporations following the 1997 financial crisis has sparkedan intense debate. Some observers argue that external shocks,including a drop in aggregate demand and a shortage of workingcapital, explain the corporate sector's poor performance. Othersassert that the difficulties were apparent well before the crisisand that the risky financial policies pursued by these firmsleft them vulnerable. A survey of the literature shows littlemicroeconomic evidence to support either view. This article compares the growth and financing patterns of EastAsian corporations in the years before the crisis with thosein other countries. It finds little microeconomic evidence thatcorporate growth was weakening but some support for the argumentthat many firms had a weak financial structure that left themvulnerable to an economic downturn. Based on a sample of morethan 850 publicly listed firms in the four crisis countries—Indonesia, Malaysia, the Republic of Korea, and Thailand and—andtwo comparators, Hong Kong (China) and Singapore, it appearsthat firm specific weaknesses already in existence before thecrisis were important factors in the deteriorating performanceof the corporate sector.