Financing Decisions of Firms and Central Bank Policy

Jacques Olivier (1) , Ai-Ting Goh (1)

1 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC

This paper aims to explain why unhedged foreign borrowing by South East Asian corporations rose sharply during the few years prior to the crisis despite little change in fundamentals. We show that decisions of firms and decisions of the central bank are complementary. Consequently, a small shock to fundamentals may have a large and permanent impact on the equilibrium composition of firms' borrowing.

Keywords: Foreign borrowing; Central bank; Asian crisis

Domains: Humanities and Social Sciences; Business administration; Humanities and Social Sciences; Economics and Finance; Economy and decision science

Jacques Olivier, Ai-Ting Goh. Financing Decisions of Firms and Central Bank Policy. Journal of International Money and Finance, 2004, Vol.23,n°7-8, pp.1187-1207. ⟨10.1016/j.jimonfin.2004.09.002⟩. ⟨hal-00460037⟩