Working Paper: NBER ID: w17468
Authors: Efraim Benmelech; Eyal Dvir
Abstract: Does short-term debt increase vulnerability to financial crisis, or does short-term debt reflect -- rather than cause -- the incipient crisis? We study the role that short-term debt played in the collapse of the East Asian financial sector in 1997-1998. We alleviate concerns about the endogeneity of short-term debt by using long-term debt obligations that matured during the crisis. We find that debt obligations issued at least three years before the crisis had a negative, albeit sometimes insignificant, effect on the probability of failure. Our results are consistent with the view that short-term debt reflects, rather than causes, distress in financial institutions.
Keywords: short-term debt; financial crisis; East Asian crisis; vulnerability; bank failure
JEL Codes: F32; F34; G21; G32; G38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| long-term debt obligations maturing during the crisis (F65) | probability of bank failure (G21) |
| short-term debt (H63) | probability of bank failure (G21) |
| long-term debt obligations issued three years or more before the crisis (F65) | probability of bank failure (G21) |