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Foreign currency borrowing by small firms in the transition economies

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  • Brown, Martin
  • Ongena, Steven
  • Yesin, Pinar

Abstract

We examine the firm- and country-level determinants of foreign currency borrowing by small firms, using information on the most recent loan extended to 3101 firms in 25 transition countries between 2002 and 2005. Our results suggest that foreign currency borrowing is much stronger related to firm-level foreign currency revenues than it is to country-level interest rate differentials. Supporting the conclusion that carry-trade behavior is not the key driver of foreign currency borrowing in our sample we find no evidence that firm-level indicators of distress costs or financial transparency affect loan currency denomination. Overall, our findings suggest that retail clients which do take foreign currency loans are better equipped to bear the corresponding currency risks than is commonly thought. Policy makers should therefore take a closer look at the characteristics of borrowers before implementing regulations which are aimed at curbing foreign currency loans.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 20 (2011)
Issue (Month): 3 (July)
Pages: 285-302

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Handle: RePEc:eee:jfinin:v:20:y:2011:i:3:p:285-302

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Web page: http://www.elsevier.com/locate/inca/622875

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Keywords: Foreign currency borrowing Competition Banking sector Market structure;

References

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Citations

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Cited by:
  1. Crespo Cuaresma, Jesús & Fidrmuc, Jarko & Hake, Mariya, 2014. "Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis," Economic Systems, Elsevier, vol. 38(1), pages 26-42.
  2. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
  3. Brown, Martin & De Haas, Ralph & Sokolov, Vladimir, . "Regional Inflation and Financial Dollarization," Working Papers on Finance 1327, University of St. Gallen, School of Finance.
  4. Martin Brown & Ralph De Haas, 2012. "Foreign banks and foreign currency lending in emerging Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 27(69), pages 57-98, 01.
  5. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan, vol. 56(1), pages 110-131, March.
  6. Stephan Barisitz, 2011. "Nonperforming Loans in CESEE – What Do They Comprise?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 46-68.
  7. Brown, M. & Haas, R. de & Sokolov, V., 2013. "Regional Inflation and Financial Dollarization," Discussion Paper, Tilburg University, Center for Economic Research 2013-073, Tilburg University, Center for Economic Research.
  8. Mora, Nada & Neaime, Simon & Aintablian, Sebouh, 2013. "Foreign currency borrowing by small firms in emerging markets: When domestic banks intermediate dollars," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 1093-1107.

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