Firm Survival and Financial Development: Evidence from a Panel of Emerging Asian Economies

Abstract

Using a panel of five Asian economies -Indonesia, Korea, Malaysia, Singapore and Thailand -over the period 1995-2007 we analyze the links between firm survival and financial development. We find that traditionally used measures of financial development play an important role in influencing firm survival. When stock markets become larger or more liquid firms' survival chances improve. On the contrary, we show that higher levels of financial intermediation can increase firm failures. We also find that the beneficial effects of stock market development are more pronounced during the later years of our sample, while the adverse effects of bank intermediation have declined over time. Finally, large firms are more likely to benefit from developments in financial markets compared to small firms.

Corporate Failures and the Denomination of Corporate Bonds: Evidence from Emerging Asian Economies Over Two Financial Crises

“…It enters with the expected negative sign implying that an increase in profitability ratio lowers the hazard of failure. This result is consistent with previous findings which show that more profitable firms are less likely to fail (Bunn and Redwood (2003); Bridges and Guariglia (2008) and Tsoukas (2011)). A one percent increase in firms' profits would decrease failure rates by 15.9%.…”

“…Considering the likely response of leverage (LEV ERAGE), as measured by the firm's long-term debt to total assets, we remark that high levels of existing debt are associated with a worse balance sheet situation, which would increase moral hazard and adverse selection problems, and lead to the inability of firms to obtain external finance at a reasonable cost (see Levin et al (2004)). Zingales (1998), Bridges and Guariglia (2008) and Tsoukas (2011) show that highly leveraged carriers, start-ups and domestic firms are less likely to survive. We expect therefore a positive relationship between leverage and the probability of failure.…”

“…Following Bunn and Redwood (2003) Bridges and Guariglia (2008) and Tsoukas (2011), we use this measure to proxy for the firm's ability to generate profits. We anticipate a positive relationship between 6 To avoid overlap between "normal times" and credit crunch periods, we exclude the 2007-09 years from the Asian crisis dummy and the 1997-98 years from the global crisis dummy.…”

“…Collateral has also been found to affect firms' chances of survival. Bridges and Guariglia (2008) and Tsoukas (2011) document that firms with a larger fraction of tangibles in their balance sheets are more likely to survive for a longer period of time. Thus, we expect a negative relationship between collateral and the incidence of failure.…”

What matters for corporate failures in Asia? Exploring the role of firm-specific characteristics during the Asian crisis

“…3 Firms operating in economies with less developed financial markets may limit themselves to bank finance, due to the absence of a developed capital market, and therefore they might face an increased hazard of failure during the Asian crisis (see Tsoukas (2011)). In our context economies with higher levels of equity market development are more likely to provide firms with better access to external finance through capital markets, while those with lower levels of equity market development are more likely to limit firms' access to external funding.…”