How Do Large Depreciations Affect Firm Performance?

39 Pages Posted: 1 Aug 2002 Last revised: 15 Aug 2002

See all articles by Kristin J. Forbes

Kristin J. Forbes

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

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Date Written: August 2002

Abstract

This paper examines how 12 'major depreciations' between 1997 and 2000 affected different measures of firm performance in a sample of over 13,500 companies from around the world. Results suggest that in the year after depreciations, firms have significantly higher growth in market capitalization, but significantly lower growth in net income (when measured in local currency). Firms with a higher share of foreign sales exposure have significantly better performance after depreciations, according to a range of indicators. Firms with higher debt ratios tend to have lower net income growth, but there is no robust relationship between debt exposure and the other performance variables. Larger firms frequently have worse performance than smaller firms, although the significance and robustness of this result fluctuates across specifications.

Suggested Citation

Forbes, Kristin J., How Do Large Depreciations Affect Firm Performance? (August 2002). NBER Working Paper No. w9095, Available at SSRN: https://ssrn.com/abstract=321361

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