Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile

Benavente, José Miguel; Johnson, C. A.; Morandé, Felipe

doi:10.1016/s1566-0141(03)00062-1

Cited by 74 publications

(45 citation statements)

References 6 publications

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“…5 Studies using micro-level data have analyzed the effect of foreign currency debt on firm investment and employment with mixed evidence on the balance sheet channel, as mentioned before. Similar to Aguiar (2005), Carranza et al (2003), Echeverry et al (2003), Benavente et al (2003), and Galiani et al (2003) find that firms with higher foreign debt contract investment more after devaluations. Based on data from Hungary, Varela and Salomao (2016) find that foreign currency borrowing is associated with higher aggregate income, but at the expense of higher volatility.…”

supporting

confidence: 62%

Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks

Schmidt‐Eisenlohr

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Evidence from U.S. Banks Abstract When firms borrow in foreign currency but collect revenues in local currency, exchange rate changes can affect their ability to repay their debt. Using loan-level data from U.S. banks' regulatory filings, this paper studies the effect of exchange rate changes on firms' loan payments. A 10 percent depreciation of the local currency makes a firm with foreign currency debt 69 basis points more likely to become past due on its loans than a firm with local currency debt. This result implies that firms do not perfectly hedge against exchange rate risk and that this risk translates into credit risk for banks. The findings lend support to both the balance sheet channel and the financial channel of exchange rates. Terms of use: Documents inJEL-Codes: F310, G150, G210.

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supporting

confidence: 62%

Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks

Schmidt‐Eisenlohr

2017

SSRN Journal

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“…A broad set of studies confirm that the use of FX debt is related to borrower characteristics, in particular borrower income structure. Large firms have been shown to match loan currencies to those of their sales in the US (Kedia and Mozumdar, 2003), Europe (Keloharju and Niskanen, 2001), Latin America (Martinez and Werner, 2002;Gelos, 2003;and Benavente et al, 2003) and East Asia (Allayannis et al, 2003).…”

Section: Bank Ownership and Client Structurementioning

confidence: 99%

Foreign banks and foreign currency lending in emerging Europe

Brown

Haas

2012

Economic Policy

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SUMMARYBased on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the relationship between bank ownership, bank funding and foreign currency (FX) lending across emerging Europe. Our results contradict the widespread view that foreign banks have been driving FX lending to retail clients as a result of easier access to foreign wholesale funding. Our cross-sectional analysis shows that foreign banks do lend more in FX to corporate clients but not to households. Moreover, we find no evidence that wholesale funding had a strong causal effect on FX lending for either foreign or domestic banks. Panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in FX lending to households. However, this is driven by faster growth in household lending in general not by a shift towards FX lending.-Martin Brown and Ralph De Haas

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“…Exchange rate depreciation may also be beneficial for domestic companies that sell tradable goods, since imported competing products become more expensive (Pratap, Lobato and Somuano, 2003). Benavente, Johnson and Morandé (2003) and Carranza, Cayo and Galdón-Sánchez (2003) identified a predominance of balance sheet effects for Chilean and Peruvian companies, respectively, with evidence in favor of competitiveness effects in the first case. Endrész and Harsztosi (2014) pointed out the balance sheet effects for Hungarian private companies after the 2008 crisis, with less impact for larger, foreign, trading and foreign-owned firms.…”

Section: Literature Reviewmentioning

confidence: 99%

The Correlation Effect between Commodity Prices and Exchange Rate for Brazilian Firms' Balance Sheets

Valle¹,

Junior²,

Cicogna³

et al. 2017

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license. This paper shows that exchange rate depreciation has a negative effect on the balance sheet of Brazilian companies with foreign indebtedness; this effect stems mainly from the negative correlation between the exchange rate and international commodity prices. While the face value of liabilities increased in proportion to the exchange rate during the period studied, revenues from exporting companies did not increase in the same proportion, since most exporting companies in Brazil are commodity producers. Therefore, the hedge expected by exporting companies' receivables is less effective than expected. The paper also finds a negative relationship between debt by BNDES and the foreign currency debt; moreover, only total assets and total liabilities have significant effects on accessing BNDES debt. Brazil's high dependence on the production and export of commodities affects domestic companies' growth of domestic companies, suggesting that the correlation effect between exchange rate and international commodity prices must be considered when investigating companies' competitiveness. JEL classifications: F34, G10, G15

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Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile

Cited by 74 publications

References 6 publications

Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks

Foreign Currency Loans and Credit Risk: Evidence from U.S. Banks

Foreign banks and foreign currency lending in emerging Europe

The Correlation Effect between Commodity Prices and Exchange Rate for Brazilian Firms' Balance Sheets

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