We use micro-level data to analyze emerging markets' private sector access to international debt markets during sovereign debt crises. Using fixed effect analysis, we find that these crises are systematically accompanied by a decline in foreign credit domestic private firms, both during debt renegotiations and for over two years after the restructuring agreements are reached. This decline is large (over 20 percent), statistically significant, and robust when we control for a host of fundamentals. We find that this effect is concentrated in the nonfinancial sector and is different for exporters and for firms in the non-exporting sector. We also find that the magnitude of the effect depends on the type of debt restructuring agreement.JEL classification: F34, F32, G32
We use micro-level data to analyze emerging markets' private sector access to international debt markets during sovereign debt crises. Using fixed effect analysis, we find that these crises are systematically accompanied by a decline in foreign credit domestic private firms, both during debt renegotiations and for over two years after the restructuring agreements are reached. This decline is large (over 20 percent), statistically significant, and robust when we control for a host of fundamentals. We find that this effect is concentrated in the nonfinancial sector and is different for exporters and for firms in the non-exporting sector. We also find that the magnitude of the effect depends on the type of debt restructuring agreement.JEL classification: F34, F32, G32
for comments. 2 The classic illustration is that a borrower will know more than a lender about his own desire and motivation to repay, although the point is more general. This is why banks and other financial institutions play a prominent role in the modern economy: by virtue of their investments in monitoring technologies characterized by economies of scale and scope, they aspire to bridge gaps in the information environment that decentralized markets cannot. These observations are widely cited in support of the notion that information asymmetries are pervasive in financial 1
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