Emerging market corporate leverage and global financial conditions

Adrian Alter and Selim Elekdag

Journal of Corporate Finance, 2020, vol. 62, issue C

Abstract: This paper explores how global financial conditions influence corporate leverage growth in emerging markets (EMs). Using a sample of 800,000 listed and non-listed firms across 28 EMs, we find that accommodative global financial conditions—initially proxied with a measure of U.S. monetary policy—are associated with faster leverage growth. The impact is more pronounced for financially constrained firms, such as small- and medium-sized enterprises (SMEs), and for EMs whose domestic monetary policy is more aligned with that of the United States. The findings suggest that global financial conditions affect EM firms' leverage growth by influencing domestic interest rates and by relaxing corporate borrowing constraints. Finally, leverage increases disproportionately more for firms that are either relatively less profitable or less solvent when global financial conditions become looser.

Keywords: Corporate capital structure; Leverage; Global financial conditions; U.S. monetary policy; Emerging market economies; Small- and medium-sized enterprises (SMEs) (search for similar items in EconPapers)
JEL-codes: F21 F32 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Working Paper: Emerging Market Corporate Leverage and Global Financial Conditions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:62:y:2020:i:c:s0929119920300341

DOI: 10.1016/j.jcorpfin.2020.101590

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