**1. Introduction**

The East Asian financial crisis has in part been attributed to the weak performance and risky financial structures of corporates. Ex-post, it has become clear that the operational performance of East Asian corporates was indeed not as stellar as many had thought and in fact involved investment with high risks. Also ex-post, it has become apparent that the financial structures of many East Asian corporates could not withstand the combined shocks of increased interest rates, depreciated currencies, and large drops in domestic demand. This poor performance and risky financing structures of East Asian corporates were, however, not notably featured among observers writing on East Asia prior to the financial crisis. Quite the opposite, East Asian corporates were considered an important contributing part of the East Asian miracle and were generally viewed upon as very competitive and adept at exploiting new market opportunities, and consequently attracted considerable amounts of (foreign) capital.

Reconciling the differences between these ex-post and ex-ante view will likely be a topic of much future research.' In this note, we are less ambitious and start with documenting the basic record in corporate perfornance and financing structures for East Asian corporates over the last decade. Analyzing whether this record led or contributed to a financial crisis will be pursued in future work. We use a database of balance sheet and income statement data for 5550 East Asian firms in nine countries over the period 1988-1996 for establishing the stylized facts on corporate performance and financing structures. The main data source are annual reports of the companies listed on the major stock exchanges in the region.

We find large differences in performance and financial structures across countries. Profitability, as measured by real return on assets (ROA) in local currency, was relatively low in Hong Kong, Japan, Korea, and Singapore throughout the period, while corporates in Indonesia, the Philippines, and Thailand had high returns, on average twice higher than those recorded in Germany and the United States over the same period. In the years 1994-1996, measured performance declined somewhat in several East Asian countries, especially Japan and Korea. These differences in performance did not show up as much in sales growth as investment rates were high and continued to drive output growth rates in all countries. These stylized facts suggest that the East Asian miracle was indeed based on a vibrant corporate sector.

However, the combination of high investment and relatively low profitability in some countries meant that much external financing was needed. As outside equity was used sparingly, partly as stock markets were depressed (Japan) or because insiders preferred to retain control, leverage was high in most East Asian countries, and increasing in Korea, Malaysia and Thailand. This created large risks as short-term (foreign exchange) borrowing became increasingly important in the last few years, especially in Malaysia, Taiwan, and Thailand. Some of the vulnerabilities in corporate financial structures that have now become a very apparent factor in Two companion papers use the same data to study specific aspects of the behavior of corporations in East Asia. Claessens et al. (1998a) investigates the patter of diversification into vertically related, complementary related, and unrelated businesses. Claessens et al. (1998b) examines the link between ownership structure and corporate performance.

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