What hinders investment in the aftermath of financial crises? Insolvent firms or illiquid banks

We quantify the effects of the lending and balance sheet channels on corporate investment, by comparing the performance of foreign-owned exporters to that of domestic during two types of financial crises: currency and twin. Our measure of balance sheet weakness is based on maturity and currency mismatches between assets and liabilities. During a twin crisis, a 1 percent worsening of the balance sheet translates into a 13 percent decline in investment by domestic exporters relative to foreign-owned exporters, while the latter increase investment by 5 percent in spite of the credit crunch. During currency crises their balance-sheet deterioration is similar although no signficant difference in investment rates.