Currency Mismatches, Balance-Sheet Effects and Hedging in Chilean Non-Financial Corporations
Kevin Cowan (),
Erwin Hansen and
Luis Oscar Herrera
No 1920, IDB Publications (Working Papers) from Inter-American Development Bank
Using a new database on the currency composition of assets and liabilities, this paper explores the determinants and consequences of currency mismatches in Chilean non-financial firms. As in previous firm level studies for Chile, we find that in periods following a depreciation firms with higher dollar debt do not underperform their peso counterparts. However, once we adequately control for differences in the currency composition of assets, income and net derivative positions, we do find a significant balance sheet effect. In addition, we find that derivatives play a role in insulating firm level investment from exchange rate shocks. In line with previous studies, we also find evidence of currency matching in Chilean corporates. Firms in Chile actively reduce the risks associated with exchange rate exposure by matching the currency composition of their debt with that of their income and assets, and by taking on derivatives if no "real" hedge is available. Finally, we find significant changes in the level of net currency exposure after the exchange rate was floated in 1999. We argue that one possible interpretation of these results is due to the effect of higher exchange rate variance on the relative risk of domestic and foreign debt.
Keywords: WP-521 (search for similar items in EconPapers)
JEL-codes: E22 E42 E5 E50 E51 E52 E58 E59 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: View citations in EconPapers (17) Track citations by RSS feed
Downloads: (external link)
https://publications.iadb.org/publications/english ... ial-Corporations.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden
Working Paper: Currency Mismatches, Balance Sheet Effects and Hedging in Chilean non-Financial Corporations (2005)
Working Paper: Currency Mismatches, Balance-Sheet Effects and Hedging in Chilean Non-Financial Corporations (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:1920
Access Statistics for this paper
More papers in IDB Publications (Working Papers) from Inter-American Development Bank Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().