Year-end Sale % OFF 
Abstract
This study is based on the non-financial companies within the fragile five countries (Turkey, Brazil, South Africa, India and Indonesia) during the period of 2004-2013. The factors affecting capital structure were assessed along with micro and macro variables for these countries. The micro variables (firm specific) included in the model were the debt taken in the previous year, firm size, growth, industry debt average, and the tangibility and profitability ratio; GDP growth, inflation and exchange rate change were included in the model as macroeconomic variables. Also, the effects of financial crises were analyzed by treating pre- and post-2008 crisis periods separately. Panel data analysis techniques are used to identify the relationships between these determinants and capital structure. The relationship between the real effective exchange rate and the debt ratio was positive in the precrisis five-country model, but it turned negative in the post-crisis model. A statistically significant relationship was discovered between the GDP growth rate and the debt ratio only for Turkey for the full period (2004-2013) and for India for the period between 2006 and 2013. On the other hand, a positive relationship was found between the inflation rate and the debt ratio for the general (2004-2013) and post-crisis models.
Highlights
The Fragile Five reference was first introduced by Morgan Stanley in 2013 for countries which are heavily dependent on foreign capital for financing their current account deficit
The micro variables included in the model were the debt taken in the previous year, firm size, growth, industry debt average, and the tangibility and profitability ratio; GDP growth, inflation and exchange rate change were included in the model as macroeconomic variables
The effects of financial crises were analyzed by treating pre- and post-2008 crisis periods separately
Summary
The Fragile Five reference was first introduced by Morgan Stanley in 2013 for countries which are heavily dependent on foreign capital for financing their current account deficit. Their common features are high current account deficits, high inflation rates, low growth rate performance, high political risk and high unemployment rate. As noted in the International Monetary Fund’s (IMF) October 2015 report, “Global Financial Stability Report: Vulnerabilities, Legacies, and Policy Challenges: Risks Rotating to Emerging Markets,” the corporate debt of nonfinancial firms across major emerging market economies rose from about $4 trillion in 2004 to over $18 trillion in 2014 (Figure 1A).
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
