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(How) do credit market conditions affect firms' post-hedging outcomes? Evidence from bank lending standards and firms' currency exposure

Mikael C. Bergbrant and Delroy M. Hunter

Journal of Corporate Finance, 2018, vol. 50, issue C, 203-222

Abstract: Tighter bank lending standards could increase firms' post-hedging currency exposure by reducing firms' ability to fund hedging (funding channel) and/or by constraining counterparties' capacity to facilitate hedging (capacity channel). We find that tighter lending standards materially increase firms' exposure. In addition, we find no support for a funding-channel effect as firms' internal liquidity does not mitigate the impact of lending standards on exposure, indicating that the impact is through the capacity channel. Finally, we find a negative association between lending standards and aggregate transactions in currency derivatives, bolstering support for a capacity-channel effect. Our results have implications for firms' hedging policy and the bank lending channel of monetary policy transmission.

Keywords: Financial constraints; Credit constraints; Lending standards; Bank-credit channel; Credit rationing; Bank loan supply; Exchange rate exposure; Currency hedging (search for similar items in EconPapers)
JEL-codes: F31 G30 G39 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:203-222