Corporate Debt in Latin America and its Macroeconomic Implications

Esteban Perez Caldentey, Nicole Favreau-Negront and Luis Mendez Lobos

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper provides an empirical analysis of nonfinancial corporate debt in six large Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), distinguishing between bond-issuing and non-bond-issuing firms, and assessing the debt's macroeconomic implications. The paper uses a sample of 2,241 firms listed on the stock markets of their respective countries, comprising 34 sectors of economic activity for the period 2009-16. On the basis of liquidity, leverage, and profitability indicators, it shows that bond-issuing firms are in a worse financial position relative to non-bond-issuing firms. Using Minsky's hedge/speculative/Ponzi taxonomy for financial fragility, we argue that there is a larger share of firms that are in a speculative or Ponzi position relative to the hedge category. Also, the share of hedge bond-issuing firms declines over time. Finally, the paper presents the results of estimating a nonlinear threshold econometric model, which demonstrates that beyond a leverage threshold, firms' investment contracts while they increase their liquidity positions. This has important macroeconomic implications, since the listed and, in particular, bond-issuing firms (which tend to operate under high leverage levels) represent a significant share of assets and investment. This finding could account, in part, for the retrenchment in investment that the sample of countries included in the paper have experienced in the period under study and highlights the need to incorporate the international bond market in analyses of monetary transmission mechanisms.

Keywords: International Bond Market; Bond-Issuing Firms; Non-Bond-Issuing Firms; Solvency; Hyman P. Minsky; Nonlinear Threshold Model (search for similar items in EconPapers)
JEL-codes: E32 G15 O11 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-mac and nep-pke
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Journal Article: Corporate debt in Latin America and its macroeconomic implications (2019)
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