Capital Controls, Corporate Debt and Real Effects: Evidence from Boom and Crisis Times

Andrea Fabiani, Martha López, Jose-Luis Peydro and Paul E. Soto

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We show that capital controls (CC), by slowing-down firm debt-growth in the boom, improve firm performance during crises. Exploiting a tax on foreign-currency (FX) debt inflows in Colombia before the Global Financial Crisis (GFC) and multiple firm-level and loan-level administrative datasets, we find that CC reduce FX-debt inflows. Firms with weaker local banking relation nships cannot fully substitute FX-debt with domestic-debt, thereby reducing firm-level total debt and imports during the boom. However, by preemptively reducing firm-level debt, CC boost exports and employment during the subsequent GFC, especially for financially-constrained firms. Moreover, CC do not significantly alter credit allocation between productive and unproductive firms. **** RESUMEN: Mostramos que los controles de capital (CC), al desacelerar el crecimiento de la deuda de las empresas en el auge, mejoran el desempeño en firmas durante las crisis. Aprovechando un impuesto sobre las entradas de deuda en moneda extranjera (ME) en Colombia antes de la Crisis Financiera Global (CFG) y múltiples bases de datos administrativos a nivel de empresa y préstamo, encontramos que CC reduce las entradas de deuda en ME. Las empresas con relaciones bancarias locales más débiles no pueden sustituir completamente la deuda en divisas por deuda local, lo que reduce la deuda total a nivel de empresa y las importaciones durante el auge. Sin embargo, al reducir de manera preventiva la deuda a nivel de empresa, CC impulsa las exportaciones y el empleo durante la CFG, especialmente para las empresas con limitaciones financieras. Además, CC no altera significativamente la asignación de crédito entre empresas productivas e improductivas.

Keywords: capital controls; firm FX-debt; real effects; macroprudential policy; capital inflows; crises; controles de capital; deuda en moneda extranjera; efectos reales; política macroprudencial; entradas de capital; crisis (search for similar items in EconPapers)
JEL-codes: E58 F34 F38 G01 G21 (search for similar items in EconPapers)
Pages: 98
Date: 2023-07
New Economics Papers: this item is included in nep-ban and nep-mon
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https://doi.org/10.32468/be.1244

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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1244

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