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The Currency of Denomination Decision for Debt Financing

Author

Listed:
  • S Ghon Rhee

    (University of Rhode Island)

  • Rosita P Chang

    (University of Rhode Island)

  • Peter E Koveos

    (Syracuse University)

Abstract

This paper examines the currency-of-denomination decision for long-term debt financing in the presence of corporate income taxes and flotation costs. The numerical analysis provides convincing evidence that the “tax effect” dominates the “flotation cost effect” unless the firm operates in tax haven countries. Hence, the conventional decision rule still applies to the choice of currency in which to borrow or to lend: Borrow in the weakest currency and lend in the strongest.© 1985 JIBS. Journal of International Business Studies (1985) 16, 143–150

Suggested Citation

  • S Ghon Rhee & Rosita P Chang & Peter E Koveos, 1985. "The Currency of Denomination Decision for Debt Financing," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 16(3), pages 143-150, September.
    • Handle: RePEc:pal:jintbs:v:16:y:1985:i:3:p:143-150
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    Cited by:

    1. Vander Linden, David, 2005. "Denomination of currency decisions and zero-cost options collars," Journal of Multinational Financial Management, Elsevier, vol. 15(1), pages 85-98, February.
    2. Sung C. Bae & Hyeon Sook Kim & Taek Ho Kwon, 2020. "Foreign currency borrowing surrounding the global financial crisis: Evidence from Korea," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(5-6), pages 786-817, May.

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