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Balance Sheet Effects in Colombian Non-Financial Firms

Adolfo Barajas (), Sergio Restrepo-Ángel (), Roberto Steiner (), Juan Medellín () and César Pabón ()

Working Papers Series. Documentos de Trabajo from Fedesarrollo

Abstract: After building up foreign currency denominated (FC) liabilities over several years, the balance sheets of Colombian firms might be particularly vulnerable to a shift in external conditions. We undertake four exercises in order to get a better understanding of these vulnerabilities. First, through probit/logit estimations we identify the firm-level and macroeconomic determinants of FC borrowing by non-financial corporations. Second, we investigate the implication of the balance sheet vulnerability for real activity. We find evidence of a FC balance sheet effect that transmits exchange rate fluctuations to firm-level investment, and show that this effect is asymmetric, much greater for depreciations than for appreciations. Third, using logit/probit estimations, we show that not all firms use forward exchange derivatives solely to hedge their FC liabilities. This might be a consequence of exchange rate intervention by the monetary authority, protecting against extreme exchange rate misalignments. Finally, we report results of a survey-based qualitative analysis on the hedging policies and activities of 12 large non-financial firms.

JEL-codes: E22 F31 (search for similar items in EconPapers)
Pages: 47
Date: 2016-11-18
New Economics Papers: this item is included in nep-lam and nep-mac
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