Discussion of M S Mohanty and Suresh Sundaresan’s paper

Vidhan Goyal

A chapter in The price, real and financial effects of exchange rates, 2018, vol. 96, pp 37-40 from Bank for International Settlements

Abstract: Madhusudan Mohanty and Suresh Sundaresan examine the importance of the legal rights of creditors on a firm’s decision to hedge its foreign currency debt. They observe that firms sometimes hedge their foreign currency exposures and sometimes leave them unhedged. While there are a number of potential drivers of a firm’s hedging decision, an important driver that has previously not been explored is the strength of the bankruptcy code and the rights of creditors in default. Mohanty and Sundaresan make an important contribution by highlighting the importance of bankruptcy laws to a firm’s decision to hedge foreign currency exposures. They present a theoretical model of this choice with clear testable implications and then test the model in two very different empirical settings to show that bankruptcy laws matter for hedging decisions.

Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bis:bisbpc:96-05

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