External shocks, financial distress and debt renegotiation: the case of Argentina

Abstract

The Argentinean crisis of 2001 has incited a large body of literature seeking to explain its causes and dynamics. Although there was much debate on this topic, little effort has been invested in understanding the causes and consequences of the crisis at the microeconomic or firm level. In this sense, the present study is an attempt to fill this gap by studying the behavior of corporate defaults and restructuring processes for the years that followed the economic crisis in Argentina (2001-2005). The paper provides basic stylized facts on the causes of default as well as the characteristics of the firms that restructured their debts. The findings show that stock variables (like liquidity ratio, leverage and equity) matter when a firm defaults, but not flow variables (such as ROA or revenues from sales). Conversely, evidence shows that when firms restructure their debts, their decision is based in both types of variables. Finally, the study confirms the adverse effect of a nominal devaluation in the presence of firm-level currency mismatch (the so-called “balance sheet” effect).