آسیب پذیری های خارجی، اثرات ترازنامه، و چارچوب نهادی - درسهایی از بحران آسیا

This study tests the balance sheet approach of “third-generation” explanations of external crises in emerging markets, looking in particular at the 1997–98 Asian crisis. Using unique datasets, we find that corporate sector balance sheets, macroeconomic balance sheets, and the legal environment have a significant impact on the likelihood of external crises, and some of which also on the depth of crises. These indicators supplement, rather than substitute, the traditional macroeconomic variables. Predictions point to potentially large improvements in the predictive power of models that include these indicators. The results highlight the importance of sound financial structures and institutional framework, alongside prudent macro policies, in limiting external vulnerability.

The devastating and unexpected impact of the Asian crisis of 1997–98 on the economies of the affected countries has often been attributed to weaknesses in corporate sector balance sheets. This was not a feature that existing crisis models could explain. Early models of currency crises emphasized inconsistent macroeconomic policies leading to an erosion of reserves and eventual attack on the exchange rate. A second generation of models emphasized a combination of weak fundamentals and insufficient political stamina to fight costly currency crises, which provide an invitation to speculative attacks (see Flood & Marion, 1999 for an overview). The countries at the core of the Asian crisis did not suffer from the traditional macro imbalances and weak fundamentals: inflation was low and fiscal balances about neutral. Banking and corporate weaknesses, however, were widespread. This inspired a “third generation” of external crisis models. Focusing on a balance sheet approach, this literature points to weaknesses or mismatches in the balance sheets of individual sectors of the economy and the country's aggregate balance sheet1 – such as currency mismatches, maturity mismatches (illiquidity), excessive indebtedness (leverage), and low profitability. Some of these models focus on the corporate sector's side – viz. Krugman, 1999, Caballero and Krishnamurthy, 2001, Caballero and Krishnamurthy, 2003, Aghion et al., 2001, Aghion et al., 2004, Bris and Koskinen, 2002 and Schneider and Tornell, 2004. They center on the existence of incomplete financial markets, which cause an over-reliance by firms on debt and foreign financing. Domestic financing is assumed to depend on limited domestic collateral, whose value collapses when the external financing constraint is tightened, for example due to a drop in investors' confidence. As a result, loans are called and companies sharply curtail productive new investment or close, contributing to a sharp fall in demand and further declines in the value of collaterals. These explanations for the crises have testable implications. The worse the corporate balance sheets, the more vulnerable countries are to external crises. Some studies have tried to explain the differences in corporate financial structure, notably Claessens et al., 2000 and Claessens et al., 2000, by including the legal and tax regimes. Stylized facts (e.g., Stone, 2000) indeed suggest that crises with a corporate element lead to sharp falls in investment and output. However, thus far little systematic empirical research has been undertaken to examine the impact of corporate balance sheets on the incidence and depth of crises. In particular, on how well the balance sheet approach helps to explain the likelihood and depth of the Asian crisis. This paper seeks to fill this void by using corporate sector indicators, derived from individual corporations' balance sheets, to test whether these affect the likelihood and depth of external crises in emerging market economies during the 1990s, with special reference to the Asian financial crisis—which inspired the third-generation models. The importance of studying these episodes is critical since the imbalances in international trade and reserves accumulation that originated in the aftermath of the Asian crisis have been linked to the global financial crisis of 2008–09 (see Obstfeld, 2010). This study also seeks to find evidence of the role of the corporate sector through the banking sector. Using data on corporate sector balance sheets allows us to study indirectly the impact that banks' balance sheets have on external crises. We do this by testing whether a large exposure of the banking sector to the corporate sector, in combination with weak corporate indicators, enhances the vulnerability to crises. In addition, we empirically investigate the effects of macroeconomic balance sheet indicators, as well as indicators of legal regimes. The study of macroeconomic balance sheet indicators allows capturing important details that are not available at the corporate level.2 We examine the influence of macro indicators and indicators of the legal regime because the quality of lending decisions arguably plays an important role in the incidence and depth of crises and the quality of such decisions is, in turn, affected by the overall institutional framework. The potential for government bailouts is, for example, often considered a prime indicator of the quality of the decisions. We use macro institutional indicators that may be indicative of the likelihood that the government will allow the private sector to service its debts without the imposition of exchange restrictions, on the reason that the potential imposition of such restrictions may lead to uncertainty and an early withdrawal of capital. Finally, we test the importance of the implementation of corporate governance standards, which the international community has highlighted in the wake of these crises, by considering indicators of the legal regime, including creditor and shareholder rights. Such variables may affect how soundly the private sector conducts its business, and their exposure to sudden large-scale withdrawal of external finance, and more generally may be indicative of the government's desire to let the private sector be responsible for its own business. To test the validity of these indicators, we examine their explanatory power in different models, so as to have a clear test of their influence over and above existing explanations. The first is a probit model of the likelihood of external crises over the coming 24 months, which outperforms acclaimed models in the literature.3 The second is an estimation of the depth of crises, which lends itself to evaluate policies that limit the impact of systemic emerging market crises on individual countries. The paper is organized as follows. In Section 2 we discuss the theory behind the indicators and their selection. In Section 3 we present the estimation results for the crisis probability, followed by those for the crisis depth in Section 4. Section 5 concludes.

Our empirical results lend support for balance sheet explanations of external crises—the third generation models—in particular to the case of the Asian crisis. The results suggest that the financial structure of the corporate sector and the legal regimes of countries, along with key macroeconomic variables found in other studies, play a particularly important role in predicting the probability of crises, and some of these can also help explain the depth of crises. There is a fair degree of similarity between the variables that help predict the probability and those that explain the depth of crises. Corporate balance sheet variables such as leveraged financing and a high ratio of short-term debt to working capital are key significant indicators of external vulnerability. Their impact, especially on the depth of the crisis, depends on the total size of credit by the banking sector to the economy. This suggests that corporate weaknesses are transmitted through the banking system, and that having a financially weak corporate sector is especially costly if it is financed through the banking system. The estimates of the crisis probability highlight more the role of macroeconomic balance sheet and institutional indicators. The ratio of bank and corporate debt to exports is especially significant, and its presence strengthens the impact of key corporate indicators, suggesting that crises are more likely if banks and corporations are more exposed to foreign financing in relation to exports, likely on account of currency mismatches and the balance sheet effects caused by currency movements. Moreover, the likelihood of a crisis is higher for countries whose public sector share in external borrowing is larger, although it has no impact on the depth of crises. This could mean that a small share of public borrowing reflects a stronger private constituency in favor of continued debt-service and integration in world markets or, in conjunction with the private debt ratio, points to the overall currency mismatches.17 The fact that these variables are significant in explaining the probability of crises, rather than the depth of crises, may be due to the fact that the former sample extends over a longer period over which more structural changes in these ratios have taken place. Of the various legal indicators, shareholder rights have by far the greatest impact on the probability of crises. In these estimations, several legal/institutional indicators – notably the indicator of accounting standards and contract enforcement – have incorrect signs. This may be due to the fact that time series data are not available for these series. These results also have important policy implications. They suggest that both macroeconomic and microeconomic policies affect external vulnerability: the stronger the microeconomic policies, the less are macroeconomic policies a constraint. The impact of the microeconomic policies is such that they are broadly at par with the economic fundamentals in explaining the probability of crises.18 The depth of crises during periods of systemic emerging market crises, while significantly influenced by the microeconomic policies, is still dominated by the core economic variables — notably the ratio of short-term debt to reserves. The existence of a tradeoff is in line with the approach advocated in IMF (2000) to closely examine private sector risk management in assessing reserve adequacy, and consistent with the fact that the advanced industrial countries manage well with limited reserves and sizable external short-term debt exposure.