Balance Sheet and Currency Mismatch: Evidence for Peruvian Firms

Nelson R. Ramírez-Rondán

No 85, Working Papers from Peruvian Economic Association

Abstract: In the Peruvian economy, as in other emerging economies, a significant portion of the debt held by firms is denominated in US dollars. While an exchange rate depreciation likely increases firm debt and influences plans of investment and production, literature finds weak or no evidence of this balance sheet effect. In this paper I argue that this effect is observed in firms with a significant currency mismatch. I estimate the currency mismatch (defined as assets minus liabilities in USD and expressed as a percentage of total assets in domestic currency) from which the exchange rate has negative effects on firms' investment. Using financial information from 74 non-financial Peruvian firms from 2002 to 2014, I find significant balance sheet effects for firms with a currency mismatch below -10.4 percent.

Keywords: Balance Sheet; Dollar Debt; Peru (search for similar items in EconPapers)
JEL-codes: C33 E22 F31 F34 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-acc, nep-mac and nep-mon
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Journal Article: Balance sheet and currency mismatch: evidence for Peruvian firms (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:apc:wpaper:2016-085

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