Firm-to-Firm Financial Linkages and Dollar Risk Transmission

Bryan Hardy, Felipe Saffie and Ina Simonovska

No 12598, CESifo Working Paper Series from CESifo

Abstract: We study how U.S. dollar fluctuations transmit through domestic supply chains in emerging markets. Large firms borrow in foreign currency and extend trade credit to domestic partners, exposing the supply chain to exchange rate risk. We develop a model where financially constrained suppliers pass through shocks to buyers, while unconstrained firms absorb them. Using quarterly firm-level data from 19 emerging markets, we provide empirical evidence consistent with the model's predictions. We find that even highly exposed firms reduce trade credit only modestly following a depreciation, while accepting large profit losses, suggesting that firm-to-firm credit relationships partially shield downstream firms from financial shocks.

Keywords: trade credit; financial constraints; supply chains; financial linkages; dollar (search for similar items in EconPapers)
JEL-codes: F31 F34 G21 G32 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-bec, nep-iaf, nep-ifn and nep-mon
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Related works:
Working Paper: Firm-to-Firm Financial Linkages and Dollar Risk Transmission (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_12598

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