Search Results
Conference Paper
The effect of a banking crisis on bank-dependent borrowers
How does the banking sector?s financial health affect bank-dependent borrowers? performance? We use the exogenous shock to U.S. banking system during the Russian crisis of Fall 1998 as a natural experiment to separate the effect of borrower?s demand of credit from the bank?s ability to supply credit and estimate the effect of U.S. bank?s financial health on the U.S. borrower?s stock-market performance. In an event window of 16 days starting with the Russian sovereign-debt default and ending with the flight of capital from Brazil, a period characterized with significant adverse shocks to the ...
Working Paper
Corporate hedging, investment and value
We consider the effect of hedging with foreign currency derivatives on Brazilian firms in the period 1997 through 2004, a period that includes the Brazilian currency crisis of 1999. We find that, derivative users have valuations that are 6.7-7.8% higher than non-user firms. Hedging with currency derivatives allows firms to sustain larger capital investments, and also removes the sensitivity of investment to internally generated funds. Thus, it mitigates the underinvestment friction of Froot, Scharfstein, and Stein (1993), at a time when capital in the economy as a whole is scarce. We further ...