EconPapers    
Economics at your fingertips  
 

Dollar borrowing, firm-characteristics, and FX-hedged funding opportunities

Leonardo Gambacorta (), Sergio Mayordomo () and Jose Maria Serena Garralda

No 14419, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We explore the link between firms' dollar bond borrowing and their FX-hedged funding opportunities, as reflected in a positive corporate basis (the relative cost of local to synthetic currency borrowing). Consistent with previous research, we first document that firms substitute domestic for dollar borrowing when they have higher dollar revenues or long-term assets and when the corporate basis widens. Importantly, our novel firm-level dataset enables to show that when these funding opportunities appear, the currency substitution is stronger for high-grade firms, as they can offer to investors close substitutes for safe dollar assets. However, firms with higher dollar revenues or long-term assets do not react to changes in the corporate basis. Altogether, the composition of dollar borrowers shifts when the basis widens, as high-grade firms gain importance, relative to firms with operational needs.

Keywords: Covered interest rate parity; credit spread; debt issuance; dollar convenience yield; foreign exchange rate hedge; Limits of arbitrage (search for similar items in EconPapers)
JEL-codes: E44 F3 F55 G12 G15 G23 G28 G32 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=14419 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Dollar borrowing, firm-characteristics, and FX-hedged funding opportunities (2020) Downloads
Working Paper: Dollar borrowing, firmcharacteristics, and FX-hedged funding opportunities (2020) Downloads
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:cpr:ceprdp:14419

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... rs/dp.php?dpno=14419

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-08-01
Handle: RePEc:cpr:ceprdp:14419