Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/231740
Authors: 
Li, Xiang
Su, Dan
Year of Publication: 
2021
Series/Report no.: 
IWH Discussion Papers No. 23/2020
Abstract: 
Capital inflow surges destabilise the economy through a maturity shortening mechanism. The underlying reason is that firms tend to make their debt redeemable on demand in order to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both firm level and macro level, our main findings are threefold. First, corporate debt maturity shortens substantially during surges, especially for firms with foreign bank relationships. Second, surges change the shape of the interest rate term structure and lead to a more flattened yield curve. Third, the probability of a crisis following surges with a flattened yield curve is significantly larger than following surges without one. Our work suggests that debt maturity is key to understanding the consequences of capital inflow bonanzas.
Subjects: 
capital inflow surges
corporate maturity structure
systemic financial crisis
JEL: 
F32
F34
F38
F65
G32
Document Type: 
Working Paper

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