| Forthcoming in World Bank Research Observer East Asian Corporations, Before and During the Recent Financial Crisis 1 by (2007) | |||||||||||||
Abstract | |||||||||||||
| The performance of East Asian corporations, often considered stellar before the 1997 financial crisis, sharply deteriorated following the crisis. This decline has sparked an intense debate. Some have argued that external shocks, including falls in aggregate demand, and shortage of working capital, have caused the poor performance. Others assert that weak prior performance and risky financial structures were the main causes. We review the performance and financing patterns of East Asian corporations in the years prior to the crisis, also relative to other countries, and find little evidence of weakening and more evidence of risky financial structures. A survey of the literature to date shows little micro-economic evidence to support either view conclusively. Using a sample of over 850 publicly listed firms in the four crisis countries (Indonesia, Korea, Malaysia, and Thailand) and two comparator countries (Hong Kong and Singapore), we next analyze factors influencing corporate performance subsequent to the financial crisis. We find that, although there is much unexplained variation, performance prior to the crisis and financing structures help explain subsequent firm performance. This suggests that weaknesses already in existence before the crisis were important factors in contributing to the corporate sectors ’ deteriorating performance. The opinions expressed do not necessarily reflect those of the World Bank. We thank Ying Lin for able research assistance and the reviewers for comments. 1. | |||||||||||||
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