The authors of this chapter have done a fine job with a fascinating topic. The broad question they address is how country characteristics influence corporate risk taking. What is especially refreshing is that both pieces of this question – the country piece and the corporate piece – are not addressed in ways familiar to most macroeconomists. The country piece, for example, does not examine the macro-policy environment, but rather the micro-institutional environment (e.g., legal systems, regulatory systems, and financial systems). The corporate piece does not examine corporate risk from the asset-pricing perspective (e.g., covariance risk), but instead examines it from the perspective of corporate financial distress: leverage ratios, liquidity ratios, profit ratios, and so on.

Addressing countries and corporate risk from these less familiar (at least to the macroeconomist) perspectives is important for completing the picture of financial crises. Several authors have suggested that corporate risk taking – in particular foreign-currency debt financing – was important in aggravating East Asian crises. This chapter does not, in itself, complete this part of the crisis picture, but it does provide an excellent platform on which this type of analysis can build. The links to the underlying corporate finance literature are nicely surveyed and well-exposited.

The main message of the paper is that there is a consistent corporate response to institutional settings. This response accords, broadly, with predictions in the corporate-finance literature in that environments that provide greater incentives for risk taking do indeed produce more risk taking. (I will refrain from repeating the specifics of their results because the authors provide a clear summary.) Of course, there is a lot of ceteris paribus going on here.