Firm-to-Firm Financial Linkages and Dollar Risk Transmission

Bryan Hardy, Felipe Saffie and Ina Simonovska

No 31078, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how U.S. dollar fluctuations transmit through domestic supply chains in emerging markets. Large firms borrow in foreign currency and extend trade credit to domestic partners, exposing the supply chain to exchange rate risk. We develop a model where financially constrained suppliers pass through shocks to buyers, while unconstrained firms absorb them. Using quarterly firm-level data from 19 emerging markets, we test and confirm the model’s predictions. We find that even highly exposed firms reduce trade credit only modestly following a depreciation, while accepting large profit losses, suggesting that firm-to-firm credit relationships partially shield downstream firms from financial shocks.

JEL-codes: E30 F2 F3 F4 G15 G3 (search for similar items in EconPapers)
Date: 2023-03
New Economics Papers: this item is included in nep-des, nep-fdg, nep-int, nep-mac, nep-mon and nep-opm
Note: CF EFG IFM ITI
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