Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock
This paper studies the causes, mechanisms and consequences of decreasing firm value and welfare loss in an economy under a fixed exchange rate regime when there is an unexpected appreciation in domestic currency. We also study the possible economic crisis caused by the exchange rate shock. We consider the established production capacity as well as the training of firm specific labors before production to obtain that unexpected appreciation in domestic currency leads to unemployment of firm workers as well as a decrease in the firm's output and revenue. Furthermore, when the exchange rate appreciates to a certain degree, it is likely to induce economic crisis--firms will stop production completely which will not only decrease the firm's value, but also create a greater loss of social welfare due to the waste of existing capacity and human capital in the economy. Our study also implies that when an economy shifts from a fixed exchange rate regime to a more flexible one, government could adopt gradual reform policies and partial deregulation of the exchange rate to reduce or prevent social welfare loss when domestic currency faces appreciation pressure.
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Format: | Journal Article biblioteca |
Language: | EN |
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2009
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Subjects: | Firm Behavior: Theory D210, Foreign Exchange F310, Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure G320, Bankruptcy, Liquidation G330, |
Online Access: | http://hdl.handle.net/10986/5790 |
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dig-okr-1098657902021-04-23T14:02:23Z Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock Gong, Qiang Jia, Shen Lin, Justin Yifu Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 This paper studies the causes, mechanisms and consequences of decreasing firm value and welfare loss in an economy under a fixed exchange rate regime when there is an unexpected appreciation in domestic currency. We also study the possible economic crisis caused by the exchange rate shock. We consider the established production capacity as well as the training of firm specific labors before production to obtain that unexpected appreciation in domestic currency leads to unemployment of firm workers as well as a decrease in the firm's output and revenue. Furthermore, when the exchange rate appreciates to a certain degree, it is likely to induce economic crisis--firms will stop production completely which will not only decrease the firm's value, but also create a greater loss of social welfare due to the waste of existing capacity and human capital in the economy. Our study also implies that when an economy shifts from a fixed exchange rate regime to a more flexible one, government could adopt gradual reform policies and partial deregulation of the exchange rate to reduce or prevent social welfare loss when domestic currency faces appreciation pressure. 2012-03-30T07:34:33Z 2012-03-30T07:34:33Z 2009 Journal Article Annals of Economics and Finance 15297373 http://hdl.handle.net/10986/5790 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article |
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Biblioteca del Banco Mundial |
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Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 |
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Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 Gong, Qiang Jia, Shen Lin, Justin Yifu Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
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This paper studies the causes, mechanisms and consequences of decreasing firm value and welfare loss in an economy under a fixed exchange rate regime when there is an unexpected appreciation in domestic currency. We also study the possible economic crisis caused by the exchange rate shock. We consider the established production capacity as well as the training of firm specific labors before production to obtain that unexpected appreciation in domestic currency leads to unemployment of firm workers as well as a decrease in the firm's output and revenue. Furthermore, when the exchange rate appreciates to a certain degree, it is likely to induce economic crisis--firms will stop production completely which will not only decrease the firm's value, but also create a greater loss of social welfare due to the waste of existing capacity and human capital in the economy. Our study also implies that when an economy shifts from a fixed exchange rate regime to a more flexible one, government could adopt gradual reform policies and partial deregulation of the exchange rate to reduce or prevent social welfare loss when domestic currency faces appreciation pressure. |
format |
Journal Article |
topic_facet |
Firm Behavior: Theory D210 Foreign Exchange F310 Financing Policy Financial Risk and Risk Management Capital and Ownership Structure G320 Bankruptcy Liquidation G330 |
author |
Gong, Qiang Jia, Shen Lin, Justin Yifu |
author_facet |
Gong, Qiang Jia, Shen Lin, Justin Yifu |
author_sort |
Gong, Qiang |
title |
Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
title_short |
Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
title_full |
Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
title_fullStr |
Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
title_full_unstemmed |
Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock |
title_sort |
firm liquidation and economic crisis under unexpected exchange rate shock |
publishDate |
2009 |
url |
http://hdl.handle.net/10986/5790 |
work_keys_str_mv |
AT gongqiang firmliquidationandeconomiccrisisunderunexpectedexchangerateshock AT jiashen firmliquidationandeconomiccrisisunderunexpectedexchangerateshock AT linjustinyifu firmliquidationandeconomiccrisisunderunexpectedexchangerateshock |
_version_ |
1756571660443451392 |