Macroeconomic Crisis and Firm Performance Defended on Thursday, 10 May 2007

In recent literature much research has been produced regarding the macroeconomic effects of crises, and on how these effects spread to different countries through contagion channels.  However, there is a lack of information on the microeconomic repercussions of these crises, particularly for emerging market economies.  The book ¨Macroeconomic Crisis and Firm Performance¨ brings up additional knowledge on this topic, using as case study the Mexican 1994 currency crisis.  We begin questioning if the Mexican 1994 crisis was anticipated or not, under a firm-level perspective.  The main result obtained is that Mexican firms were not able to anticipate this currency crisis, or at least that they did not have the flexibility to adjust their capital structure accordingly before the crisis took place.  The crisis propagation and effects on Mexican firms are then studied into depth.  The main findings show that this currency crisis had generally negative effects on companies’ balance sheets, and firms’ interconnections evolved in propagation among themselves.  In addition, recovery was only partial and gradual, and overall the crisis episode was prejudicial even for surviving firms.  Nevertheless, there were some differences in performance, related to firm characteristics such as internal corporate governance arrangements.  We conclude that, during the Mexican crisis, having bank links was prejudicial for companies´ performance.  On the contrary, during this crisis episode, belonging to business groups contributed to firm performance. An export-orientation showed to have an increasingly positive effect on performance, from pre-crisis to post-crisis periods.  From the findings obtained, we derive a number of recommendations in order to reduce companies´ vulnerabilities to future macroeconomic crises.

Keywords

corporate governance, firm performance, currency crisis, emerging markets, crisis anticipation, crisis propagation


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