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Reserve Accumulation and Firm Investment: Evidence from Matched Bank–Firm Data

Author

Listed:
  • Woo Jin Choi

    (Korea Development Institute)

  • Ju Hyun Pyun

    (Korea University Business School)

  • Youngjin Yun

    (Bank of Korea)

Abstract

We match non-financial firms in Korea with their main banks for the period over 2003-2017 to examine whether and how corporate investments are affected by changes in international reserves. We first show that firm investment is negatively associated with international reserves. By tracing the public securities used for sterilization, we further show that investment of a non-financial firm reduces if its main bank increases public securities holdings in accordance with reserve accumulation. Massive supply of sterilization securities shifts banks’ balance sheet composition and adversely affects investments, especially for financially constrained firms.

Suggested Citation

  • Woo Jin Choi & Ju Hyun Pyun & Youngjin Yun, 2020. "Reserve Accumulation and Firm Investment: Evidence from Matched Bank–Firm Data," GRU Working Paper Series GRU_2020_027, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2020_027
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    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232020-027%20Choi.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    FX reserves; sterilized intervention; firm investment; bank balance sheet;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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