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Corporate dollar debt and depreciations: All’s well that ends well?

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  • Caballero, Julián

Abstract

This paper explores the effect of depreciations on investment when firms hold foreign currency debt. The paper employs a novel database of stocks of foreign currency bonds issued by seven thousand firms from emerging economies in 2000–2015. The results indicate that currency depreciations exert a significant negative effect on balance sheets. A depreciation of 10 percent is associated with a ratio of capital expenditures to assets of between 0.3 and 0.6 percentage points less for firms with outstanding stocks of foreign currency bonds in the year following the depreciation. This result is robust to different inference techniques and to controlling for a large number of potential confounders.

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  • Caballero, Julián, 2021. "Corporate dollar debt and depreciations: All’s well that ends well?," Journal of Banking & Finance, Elsevier, vol. 130(C).
  • Handle: RePEc:eee:jbfina:v:130:y:2021:i:c:s0378426621001448
    DOI: 10.1016/j.jbankfin.2021.106185
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    More about this item

    Keywords

    Fixed investment; Bond issuance; Currency mismatch; Balance sheets;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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