Financial Stress in the Foreign Exchange Market and its Real Effect on Firm Investments: Evidence from South Korea

Deokki Ko

Global Economic Review, 2022, vol. 51, issue 2, 142-158

Abstract: This study proposes an exogenous financial stress index for South Korea’s foreign exchange market (EXO-FSIFX) and explores its effect on firm investments using panel data on manufacturing firms listed on the Korea Exchange from 2000 to 2019. The empirical results show that EXO-FSIFX negatively affects firm investments on average, and the strength of this relationship varies by firm characteristics. Specifically, the negative impact of EXO-FSIFX on firm investments increases in firms with procyclical sales and financial unsoundness.

Date: 2022
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DOI: 10.1080/1226508X.2022.2079544

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