This paper uses firm-level information to examine how the Asian and Russian crises affected different types of firms around the world. It constructs a new data set of financial statistics, industry information, geographic data, and stock returns for over 10,000 companies in 46 countries. Results indicate that firms that competed with exports from the crisis countries, and firms which had direct sales exposure to the crisis countries, had substantially lower abnormal stock returns during these periods. On the other hand, firms with higher debt ratios did not experience significantly lower abnormal returns. Country-specific effects, although important determinants of company stock returns, generally have a smaller impact than the firm-specific characteristics. This series of results suggests that trade channels are important determinants of how crises are transmitted internationally.

The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. Financial Restructuring in East Asia: Halfway There? iii Summary Resolving systemic banking and corporate distress is no easy task. This paper reviews bank and corporate restructuring efforts in the four East Asian crisis countries—Indonesia, Republic of Korea, Malaysia, Thailand—and identifies remaining priorities for reform. The analysis indicates that two years into the process, much has been done—but much remains to be accomplished. Although governments have spent substantial resources to clean up the balance sheets of financial intermediaries, restructuring is incomplete, much new capital is still needed, and for most intervened financial institutions new private owners have yet to be found. Progress on corporate restructuring is less advanced, and many corporations remain overindebted. Durable economic recovery depends on further progress in both areas. In particular, decisive improvements in the allocation of investible funds will require better-capitalized banking systems and deeper institutional reforms in financial regulation and supervision, corporate governance,

The sharp decline in the once-stellar performance of East Asian corporations following the 1997 financial crisis has sparked an intense debate. Some observers argue that external shocks, including a drop in aggregate demand and a shortage of working capital, explain the corporate sector’s poor performance. Others assert that the difficulties were apparent well before the crisis and that the risky financial policies pursued by these firms left them vulnerable. A survey of the literature shows little microeconomic evidence to support either view. This article compares the growth and financing patterns of East Asian corporations in the years before the crisis with those in other countries. It finds little microeconomic evidence that corporate growth was weakening but some support for the argument that many firms had a weak financial structure that left them vulnerable to an economic downturn. Based on a sample of more than 850 publicly listed firms in the four crisis countries— Indonesia, Malaysia, the Republic of Korea, and Thailand—and two comparators, Hong Kong (China) and Singapore, it appears that firm-specific weaknesses already in existence before the crisis were important factors in the deteriorating performance of the corporate sector. The East Asian crisis has sparked a large body of literature seeking to explain its causes, onset, and evolution. Whether sudden shifts in market expectations and confidence were the primary source of the financial turmoil has been hotly debated. Proponents of this view argue that although some macroeconomic and other fundamentals may have worsened in the mid-1990s, the extent and depth of the crisis can be attributed not to a deterioration in fundamentals but rather to the panicky reaction of anxious domestic and foreign investors (Furman and Stiglitz 1998; Radelet and Sachs 1998). Others argue that the crisis reflected structural and policy distortions in the region, including weak macroeconomic policies, and that fundamental

We compare group affiliation in seven East Asian countries and Chile, using data for more than 1,000 publicly traded firms. We document that 75% of listed firms are associated with groups in East Asia, but only 40% in Chile. We find evidence that group structures are used to diversify risks internally as firms' market risk is influenced not only by own characteristics#such as size, price/book ratio#but also by group characteristics, especially in Chile. There are costs to groups, however. For East Asian countries, we find that group structures are used by controlling owners to expropriate other shareholders. On balance, it appears that business groups are not beneficial to shareholders. World Bank. The opinions expressed do not necessarily reflect those of the World Bank. We thank Tatiana Nenova, Gordon Phillips, Andrei Shleifer, and Rene Stulz for helpful suggestions, our discussant Salvador Valdes for useful comments, and Ying Lin for excellent research assistance.

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 number of developed and emerging-market economies on banking crisis resolution. This article, which draws on the information provided in the workshop is based on a paper presented at its concluding conference. It describes some of the principles that authorities should and do consider when resolving banking crises, and possible resolution options 1. It also assesses the resolution practice in recent systemic banking crises.

Work in progress

Abstract: We examine the valuation effect of a bank's insolvency on related industrial firms. Our sample includes 29 insolvent banks in Indonesia, Korea, and Thailand that serve as main creditors for 269 publicly traded companies. Our findings suggest that a bank relationship adds value to a firm, and that investor confidence in bank-related firms depends on investor’s certainty in the continuity of the banking relationship. Announcement of a bank closure, preceding liquidation and resulting in a complete loss of ties with the main creditor, leads to discounts in the market value of related firms. Announcement of a nationalization, preceding recapitalization and new management, is associated with short- and long-term premiums in the market value of related firms. Announcement of a foreign sale is associated with initial value discounts, but longer-term market premiums as investors revise their expectations of the effect of foreign capital and expertise. The announcement of a domestic merger, which continues the banking relationship but adds neither capital nor new management, has a significantly positive short-term effect on the market value of related firms, but no long-term effect. Significant cumulative returns for fifty days following our event date suggest that investors correctly expect changes in bank ownership to have real effects on the performance of related firms. We also explore but do not find support for alternative explanations of our results.

Late last year, the Bank of England’s Centre for Central Banking Studies hosted a research workshop for officials from a number of developed and emerging market economies on banking crisis resolution. This article, which draws on the information provided in the workshop, is based on a paper presented at its concluding conference. It describes some of the principles that authorities should and do consider when resolving banking crises, and possible resolution options. 2 It also assesses the resolution practice in recent systemic banking crises. OVER THE PAST QUARTER of a century, unlike the preceding 25 years, there have been many large bank failures around the world. Caprio and Klingebiel (2003), for example, document 117 episodes of systemic crises and 51 cases of borderline or non-systemic crises in developed and emerging market countries since the late 1970s. 3 Moreover, cross-country estimates suggest that output losses during banking crises have been, on average, large – over 10 % of annual GDP 4 – and that bank

Recent financial crises involving the corporate and financial sectors in emerging markets, especially in East Asia in 1997-1998, have raised important questions on the proper role of the