The diverse effects of currency crises on multinational and local firms: The use of foreign currency debt

Jing Jin, Rose C. Liao and Gilberto Loureiro

Journal of Multinational Financial Management, 2021, vol. 62, issue C

Abstract: Using a large sample of 1017 multinational parents with 13,758 affiliates and 3588 local firms in 26 countries, we examine the impact of currency crises on multinational firms and local firms between 2006 and 2014. We find that multinational affiliates use their internal capital markets to capitalize on the benefits of large currency depreciations and increase sales and investment significantly more than local firms. We trace this differential response to the use of foreign currency debt. We find that local firms without foreign currency debt are less affected by currency depreciations. In addition, multinational affiliates whose parent firms are also affected by a currency crisis in their home country experience a larger decrease in sales and investment. Our results are not driven by the global financial crisis years.

Keywords: Currency crisis; Multinational firms; Foreign debt (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:62:y:2021:i:c:s1042444x2100030x

DOI: 10.1016/j.mulfin.2021.100706

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