Information Asymmetry and Foreign Currency Borrowing by Small Firms

Martin Brown, Steven Ongena and Pinar Yeşin
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Pinar Yeşin: Swiss National Bank, PO Box 2800, 8022 Zurich, Switzerland.
Authors registered in the RePEc Author Service: Pınar Ayşe Yeşin

Comparative Economic Studies, 2014, vol. 56, issue 1, 110-131

Abstract: We model how an information asymmetry between the lending bank and the applying firm about the currency structure of firm revenues may affect loan currency choice. Our framework features a trade-off between the lower cost of foreign currency debt and the costs of currency induced loan default. We show that under imperfect information about firm revenues more local earners choose foreign currency loans, as they do not bear the full cost of the corresponding credit risk. This result is consistent with recent evidence showing that information asymmetries may increase foreign currency borrowing by retail clients in the transition economies.

Date: 2014
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Related works:
Working Paper: Information Asymmetry and Foreign Currency Borrowing by Small Firms (2012)
Working Paper: Information Asymmetry and Foreign Currency Borrowing by Small Firms (2011)
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