Shifts in Global Credit and Corporate Access to Finance

The Rise of Regional Financial Cycle and Domestic Credit Markets in Asia

“…In our analysis, the main dependent variables are firms' domestic debt ratio and FX debt ratio calculated as the ratio of domestic bank borrowings over total debt and proceeds from foreign currency borrowings (in INR million) over total debt, respectively. 9 Moreover, we include several firm-level controls in line with Banti and Bose (2021) such as firm size, measured as log real total assets. Firms that are larger in size are able to cope well with financial constraints and have greater access to external finance (Bose, Mallick, and Tsoukas, 2020;Bose, MacDonald, and Tsoukas, 2019).…”

“…In addition to increased uncertainty with respect to US monetary policy, this episode has also marked the beginning of the divergence of monetary policy between the US and other advanced economies. This divergence had dramatic effects on global credit, altering the sensitivities of bank flows and corporate debt to global liquidity (Avdjiev et al, 2020;Banti and Bose, 2021). Following Avdjiev et al (2020), we measure the monetary policy divergence between the US and the main lender Japan with the difference between the 3-month Euro-dollar and Euro-Yen futures.…”

“…It is generally agreed that lagged variables (referred as the 'internal' instruments) are distributed independently of the error process and that they are sufficiently correlated with the included endogenous regressors. Hence, they are frequently used as instruments in the literature (Bose et el., 2019;Banti and Bose, 2021).…”

“…Second, India is one of the largest and fastest growing economies in the world, 2 with important global and regional economic linkages. Its interconnection to global markets was reflected by the particularly large capital outflows and currency depreciation during the 2013 taper tantrum episode (Azis and Shin, 2015;Banti and Bose, 2021). As such, India provides a comprehensive case to study rising FX risk exposures especially in the aftermath of Global Financial Crisis (GFC), and cross-border monetary transmissions via regional and global financial channels for other economies in the region.…”

“…In May 2013, Bernanke's speech on future tapering of the US quantitative easing policy triggered episodes of capital inflow reversals (Bank for InternationalSettlements, 2013). This episode marked the beginning of a period of intense capital flows volatility and global markets uncertainty leading to shifts in firms' access to global credit(Banti and Bose, 2021).…”