Sunday, December 17, 2017

Financial Crisis and the Resolution of Financial Distress: Evidence from Malaysia and Thailand

Lin, Tan Wei. 2008. Financial Crisis and the Resolution of Financial Distress: Evidence from Malaysia and Thailand. Doctoral Dissertation, NUS.
The Asian Financial Crisis brought about widespread financial distress in both the corporate and banking sectors. Therefore, the efficiency of asset resolution policy would determine, in large part, the impact of the crisis on the economy as well as speed of economic recovery. Using a two- tier hierarchical framework which comprises of a regulator, banks and firms, lin examine how hidden information and moral hazard affect agents' behavior and thus, the regulator's policy choice. The study show that banks' tendency to rollover defaulted loans encourage firms' manager to dissipate assets. Therefore, if the regulator anticipates that banks are likely to rollover defaulted loans than invoking bankruptcy, the regulator, under certain conditions, should opt for a centralized approach. The study complement a theoretical model with empirical study and show that Malaysia, which opted for a centralized approach had larger improvement in real bank credit growth, NPL ratio and corporate performance as compared to Thailand, which opted for a decentralized approach till 2001.

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