Foreign Currency Debt, Investment and Exit Choices in the Cross Section of Firms

Liliana Varela and Juliana Salomao
Additional contact information
Juliana Salomao: University of Minnesota

No 1422, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies firms' debt composition, investment opportunities and exit choices in developing economies. We develop a model and show that deviations from the uncovered interest rate parity lead exporters and non-exporters to hold foreign currency denominated debt. Our theoretical framework shows that smaller firms with greater growth opportunities choose higher levels of foreign currency debt to invest and expand their scale of operations. In addition, the model shows that exporters have greater incentives to undertake foreign currency debt, as imperfect exchange rate pass-through affect their revenues relatively more. We confirm the model’s implications using firm-level census data on firms’ financing and investment choices around the years of the Great Recession.

Date: 2016
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
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:red:sed016:1422

Access Statistics for this paper

More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().