The boom of corporate debt in emerging markets: Carry trade or save to invest?
José De Gregorio and
Mauricio Jara
Journal of International Economics, 2024, vol. 148, issue C
Abstract:
The decline in international interest rates following the global financial crisis encouraged firms in emerging markets to increase their corporate bond issuance abroad. Evidence shows that issuing offshore debt increases cash holdings, suggesting firms may exploit interest rate arbitrage. We argue that increasing contemporaneous cash holdings may also be undertaken for a “save to invest” motive to finance future investment opportunities. Using a sample of nonfinancial listed firms from 15 emerging market economies from 2001 to 2016, we show that companies accumulate cash when carry trade is favorable; however, we find that the increased cash holdings substantially revert in the following two periods, consistent with arguments for a “save to invest” motive. Indeed, offshore debt has a significant impact on both current and next-year investment.
Keywords: Emerging markets; Offshore debt; Carry trade; Corporate investment (search for similar items in EconPapers)
JEL-codes: E4 G00 G30 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199623001307
Full text for ScienceDirect subscribers only
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:148:y:2024:i:c:s0022199623001307
DOI: 10.1016/j.jinteco.2023.103844
Access Statistics for this article
Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés
More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu (repec@elsevier.com).