Do Phoenix Miracles Exist? Firm-Level Evidence from Financial Crises
This paper provides empirical evidence on firm recoveries from financial system collapses in developing countries (systemic sudden stops episodes), and compares them with the experience in the United States in the 2008 financial crisis. Prior resea...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
2012
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| Subjects: | |
| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20110919161453 http://hdl.handle.net/10986/3563 |
| Summary: | This paper provides empirical evidence
on firm recoveries from financial system collapses in
developing countries (systemic sudden stops episodes), and
compares them with the experience in the United States in
the 2008 financial crisis. Prior research found that
economies recover from systemic sudden stop episodes before
the financial sector. These recoveries are called Phoenix
miracles, and the research questioned the role of the
financial system in recovery. Although an average of the
macro data across a sample of systemic sudden stop episodes
over the 1990s appears consistent with the notion of Phoenix
recoveries, closer inspection reveals heterogeneity of
responses across the countries, with only a few countries
fitting the pattern. Micro data show that across countries,
only a small fraction (less than 31 percent) of firms follow
a pattern of recovery in sales without a recovery in
external credit, and even these firms have access to
external sources of cash. The experience of firms in the
United States during the 2008 financial crisis also suggests
no evidence of credit-less recoveries. An examination of the
dynamics of firms' financing, investment and payout
policies during recovery periods shows that far from being
constrained, the firms in the sample are able to access
long-term financing, issue equity, and significantly expand
their cash holdings. |
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