Financial Crises and Firm Performance
Financial Crises and Firm Performance
Financial crises
• Financial crises could happen anywhere, although emerging markets tended to be more seriously afflicted in recent times
• Companies operating in a region where a financial crisis had broken out could undergo corporate disasters as a result.
• The following sections describe what happened during three major financial crises in the late 1990s and early 2000s, and how the business sectors of the regions were affected.
• The best-known of these crises are those that hit Latin America in the 1980s, Mexico in the mid-1990s, several Asian countries in the late 1990s, most transition economies in the mid-1990s, Russia in the late 1990s, and Argentina in 2002.
Types of financial crisis
• Currency crises - occur when an attack on the exchange rate of an economy's currency results in a devaluation or sharp depreciation of the currency
• Banking crises- occur when bank runs or failures force banks to renege on their liabilities or force governments to intervene to keep the banking system from failing.
• Foreign debt crises- occur when a nation or region cannot service its foreign debt, typically due to a shortage of foreign exchange.
• Systemic financial crises occur when the financial sector gets so disrupted that it can no longer properly support the workings of the real economy.
• Financial crises often see exchange rates and asset values tumble, financial institutions fail, ripple effects hurt other types of companies, and substantial economic dislocation.
Causes of financial crises-
• Unsustainable economic imbalances due to misaligned asset prices or exchange rates.
• Global financial fluctuations,
• structural economic problems,
• poor financial market supervision,
• inappropriate behaviour within the financial sector,
• and unsustainable macroeconomic policies are often contributing features. ((Macroeconomic policy) Any policy intended to influence the behavior of important
Financial crises
• Financial crises could happen anywhere, although emerging markets tended to be more seriously afflicted in recent times
• Companies operating in a region where a financial crisis had broken out could undergo corporate disasters as a result.
• The following sections describe what happened during three major financial crises in the late 1990s and early 2000s, and how the business sectors of the regions were affected.
• The best-known of these crises are those that hit Latin America in the 1980s, Mexico in the mid-1990s, several Asian countries in the late 1990s, most transition economies in the mid-1990s, Russia in the late 1990s, and Argentina in 2002.
Types of financial crisis
• Currency crises - occur when an attack on the exchange rate of an economy's currency results in a devaluation or sharp depreciation of the currency
• Banking crises- occur when bank runs or failures force banks to renege on their liabilities or force governments to intervene to keep the banking system from failing.
• Foreign debt crises- occur when a nation or region cannot service its foreign debt, typically due to a shortage of foreign exchange.
• Systemic financial crises occur when the financial sector gets so disrupted that it can no longer properly support the workings of the real economy.
• Financial crises often see exchange rates and asset values tumble, financial institutions fail, ripple effects hurt other types of companies, and substantial economic dislocation.
Causes of financial crises-
• Unsustainable economic imbalances due to misaligned asset prices or exchange rates.
• Global financial fluctuations,
• structural economic problems,
• poor financial market supervision,
• inappropriate behaviour within the financial sector,
• and unsustainable macroeconomic policies are often contributing features. ((Macroeconomic policy) Any policy intended to influence the behavior of important