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Foreign currency exposure and balance sheet effects: A firm-level analysis for Korea

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  • Kim, Yun Jung

Abstract

If firms match the currency composition of their liabilities with that of their assets or income, a currency depreciation will have an ambiguous effect on investment of firms holding foreign debt. Using Korean firm-level data, we first find evidence of currency matching. We then show that foreign debt has a significant negative balance sheet effect on firm investment following a depreciation, once foreign assets and exports are controlled for. The balance sheet effect is particularly severe for firms subject to financial constraints. The inclusion of foreign assets is important for identifying the balance sheet effect separately from the competitiveness effect.

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  • Kim, Yun Jung, 2016. "Foreign currency exposure and balance sheet effects: A firm-level analysis for Korea," Emerging Markets Review, Elsevier, vol. 26(C), pages 64-79.
    • Handle: RePEc:eee:ememar:v:26:y:2016:i:c:p:64-79
    DOI: 10.1016/j.ememar.2016.02.001
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    More about this item

    Keywords

    Foreign currency debt; Currency matching; Balance sheet effects; Korean economy;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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