An empirical and institutional examination of 5 post - crisis capital flows — Thailand case

12 In this paper, we developed and estimated a model of the Thai firm during the crisis. Our results 13 indicate that firms with the highest debt-equity ratios suffered the steepest declines in earnings per 14 share during the crisis from the financial distressed costs. We take this result as strong evidence for 15 the credit channel. Surprisingly, firms with the largest market capitalizations suffered more than the 16 smaller firms owing to their capital structure and financial leverage effect. We also witness asymmetric 17 impact between the industries—exporters, importers and intermediate. We take this as evidence of 18 different scale-effects on different industries, a feature that we do not explicitly model. In other 19 words, the production effect is more pronouncing in import related industries than the export-oriented 20 one. Note that firms that import intermediate goods also suffered greatly from the crisis from both 21 credit and production channels. Taken together, our overall results indicate that the crisis damaged 22 the earnings per share of firms more on credit channels than the production channels. There exists a 23 peculiar tradeoff between benefits from currency devaluation to promote exports and severe adverse 24 impact on both credit channel and asymmetric impact on production channel. 25 © 2004 Published by Elsevier B.V. 26