Corporate Dollar Debt and Depreciations: Much Ado About Nothing?

Abstract

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Dollarization of Debt Contracts: Evidence From Chilean Firms

“…On the other hand, the sample period used in this paper also includes the first years of the 1990s during which the nominal exchange rate depreciated significantly. Obviously, this feature is shared by Bleakley and Cowan (2002) but not for the other studies that have analyzed the Chilean experience.…”

“…Both the point estimate and the standard error indicate that there is no balance‐sheet effect. If one interprets the results following the explanation of Bleakley and Cowan (2002) for the absence of a balance‐sheet effect in many empirical papers, this implies that the negative worth effect and the productivity effect cancel each other. Therefore, firms appear to hedge their risks efficiently.…”

“…As mentioned earlier, one of the drawbacks of this data set is that it includes data only from Chilean firms. This differs with Bleakley and Cowan (2002) and Luengnaruemitchai (2003), who use data from a group of Latin American and Asian economies. Nevertheless, there are several reasons that make the study of the Chilean case interesting.…”

“…To shed some light on this conjecture, we ran a cross‐section regression of investment for the year 2001, when both the real and nominal Chilean exchange rate exhibited significant depreciation (recall Figure 1). We use a similar specification to the one used by Bleakley and Cowan (2002). The results are presented in Table 5 and strongly suggest that the omission of the high depreciation period explains the absence of a negative balance‐sheet effect 21…”

“…9 9 This is done, although with different proxy variables, by Bleakley and Cowan (2002) and Kedia and Mozumdar (2003) and several of the other papers discussed in . …”