sector precedes or occurs at the same time as the recovery in output of the corporate sector? Do firms experience Phoenix Miracles where their sales recover without a recovery in external credit? We then compare and contrast the experience of the emerging market firms to that of US firms during the 2008 US financial crisis and investigate if the US recovery process is a Phoenix Miracle as suggested by recent macro studies.

To answer these questions, we explore if the micro mechanism of the recovery process detailed in Calvo et al. (2006a, b) is borne out in our sample of publicly listed firms.<sup>2</sup> To explain the existence of Phoenix Miracles, Calvo et al. (2006b) propose a partial equilibrium model with financial frictions, where firms in developing countries can obtain short-term credit from banks for working capital used to finance inventory accumulation or the wage bill. In their model, bank credit dries up in a crisis leading to a drop in firms’ holdings of short terms assets that are financed by bank credit. The short term assets/output ratio does not fully adjust to permit the firm to produce at the same level, leading to a drop in output and investment. Over time, the stock of short term assets is restored by discontinuing investments and out of self-generated cash flows. Thus, output recovers even while bank credit hasn’t fully recovered, giving rise to the Phoenix Miracle.<sup>3</sup> To test the model predictions and reconcile the macro evidence with micro data, we first use firm-level data from Bloomberg database for 9 emerging market 3S episodes over the 1990s – Argentina, Indonesia, Korea, Malaysia, Mexico, Russia, Thailand, and two episodes in Turkey.<sup>4</sup> Each of the emerging market crisis episodes has also been previously identified as being a Phoenix Miracle, where there is a recovery in output while credit still stagnates. Developing countries are most likely to the meet the conditions for the existence of Phoenix miracles following 3S episodes as firms in those countries are more likely to depend on short-

> 2 Publicly listed firms are typically the largest firms in an economy and thus presumably driving the recovery process. While we are limited by the unavailability of detailed balance sheet on private firms across countries as in other cross-country micro studies, we are able to examine the recovery process for a sample of private firms in Argentina (one of the 3S episodes in our sample) and find that the pattern mirrors the public firm sample.

> 3 Micro-evidence of recovery from 3S episodes are also of independent interest as  studies on economy-wide production and productivity forecasts (Miron and Zeldes, 1989; Bartelsman and Wolf, 2009; Young, 2009) have shown that micro-level evidence has more information and less measurement error than the macro data.

> 4 Calvo, Izquierdo, and Mejia (2004) argue that global capital market turmoil acts as a coordinating factor external to the emerging markets in many of the sudden stop episodes. They show that sudden stops are not a common feature in developed economies (83% of depreciation episodes in developed markets over the 1990s were not accompanied by sudden stops) since developed countries are likely to remain open during currency crises.

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