Surges and instability: The maturity shortening channel

Arbeitspapier

Capital inflow surges destabilise the economy through a maturity shortening mechanism. The underlying reason is that firms have incentives to redeem their debt on demand 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 the firm and macro levels, our main findings are twofold. First, a significant association exists between surges and shortened corporate debt maturity, especially for firms with foreign bank relationships and higher redeployability. Second, the probability of a crisis following surges with a flattened yield curve is significantly higher than that following surges without one. Our study suggests that debt maturity is the key to understand the financial instability consequences of capital inflow bonanzas.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IWH Discussion Papers ; No. 23/2020

Classification and Topics

• Classification: Wirtschaft ; Current Account Adjustment; Short-term Capital Movements ; International Lending and Debt Problems ; International Financial Policy: Financial Transactions Tax; Capital Controls ; Economic Impacts of Globalization: Finance ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: capital inflow surges ; corporate maturity structure ; systemic financial crisis ; term structure

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Li, Xiang ; Su, Dan
• Event: Veröffentlichung
• (who): Halle Institute for Economic Research (IWH)
• (where): Halle (Saale)
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/251869
• Last update: 10.03.2025, 11:43 AM CET