International Pecking Order

Egemen Eren, Semyon Malamud and Haonan Zhou
Additional contact information
Semyon Malamud: Ecole Polytechnique Federale de Lausanne; Centre for Economic Policy Research (CEPR); Swiss Finance Institute

No 22-15, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We document that corporates in emerging markets borrow more in foreign currency when the local currency provides a better hedge in downturns. We develop an international corporate finance model in which firms facing adverse selection choose the foreign currency share of their debt. In the unique separating equilibrium, good firms optimally expose themselves to currency risk to signal their type. The nature of this equilibrium crucially depends on the co-movement between cash flows and the exchange rate. We provide extensive empirical evidence for this signalling channel using micro data for firms in multiple emerging markets and event studies of local currency depreciation episodes.

Keywords: Foreign currency debt; corporate debt; signalling; exchange rates; pecking order (search for similar items in EconPapers)
JEL-codes: D82 F34 G01 G15 G32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2022-02
New Economics Papers: this item is included in nep-cfn, nep-cwa, nep-fdg, nep-ifn and nep-opm
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4029741 (application/pdf)

Related works:
Working Paper: International Pecking Order (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2215

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().