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Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars

Nada Mora (), Simon Neaime () and Sebouh Aintablian

Journal of Banking & Finance, 2013, vol. 37, issue 3, 1093-1107

Abstract: This paper investigates what induces small firms in an emerging market economy to borrow dollar credit from domestic banks. Our data are from a unique survey of firms in Lebanon. The findings complement studies of large firms with foreign currency loans from foreign lenders. Exporters, naturally hedged against currency risk, are more likely to incur dollar debt. Firms also partly hedge themselves by passing currency risk to customers and suppliers. Less opaque firms with easily verifiable collateral and higher net worth are more likely to access dollar credit. Firms reliant on formal financing (banks and supplier credit) are more likely to contract dollar debt than firms reliant on informal financing (family, friends and moneylenders). Bank relationships, however, do not increase the dollar debt likelihood. And finally, profitable firms are less likely to have dollar debt. Information frictions and limited collateral, therefore, constrain dollar credit even when it is intermediated domestically.

Keywords: Dollarization; Foreign currency borrowing; Dollar debt; Currency mismatch (search for similar items in EconPapers)
JEL-codes: F31 G21 G32 (search for similar items in EconPapers)
Date: 2013
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