Currency depreciation and emerging market corporate distress
Valentina Bruno and
Hyun Song Shin
No 753, BIS Working Papers from Bank for International Settlements
How do emerging market corporates fare during periods of currency depreciation? We find that non-financial firms that exploit favorable global financing conditions to issue US dollar bonds and build cash balances are also those whose share price is most vulnerable to local currency depreciation. In particular, firms' vulnerability to currency depreciation derives less from the foreign currency debt as such, but from the cash balances that are built up by using foreign currency debt. Overall, our results point to a financial motive for dollar bond issuance by emerging market firms in carry trade-like transactions that leave them vulnerable in an environment of dollar strength.
Keywords: emerging market corporate debt; currency mismatch; liability dollarization; global financial conditions (search for similar items in EconPapers)
JEL-codes: E44 G15 (search for similar items in EconPapers)
Pages: 53 pages
New Economics Papers: this item is included in nep-cfn and nep-ifn
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Journal Article: Currency Depreciation and Emerging Market Corporate Distress (2020)
Working Paper: Currency depreciation and emerging market corporate distress (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:753
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