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Currency depreciation and emerging market corporate distress

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  • Valentina Bruno
  • Hyun Song Shin

Abstract

How do emerging market corporates fare during periods of currency depreciation? We find that non-financial firms that exploit favorable global financing conditions to issue US dollar bonds and build cash balances are also those whose share price is most vulnerable to local currency depreciation. In particular, firms' vulnerability to currency depreciation derives less from the foreign currency debt as such, but from the cash balances that are built up by using foreign currency debt. Overall, our results point to a financial motive for dollar bond issuance by emerging market firms in carry trade-like transactions that leave them vulnerable in an environment of dollar strength.

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  • Valentina Bruno & Hyun Song Shin, 2018. "Currency depreciation and emerging market corporate distress," BIS Working Papers 753, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:753
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    5. Tahsin Saadi Sedik & Bo Jiang, 2019. "The Turning Tide: How Vulnerable are Asian Corporates?," IMF Working Papers 2019/093, International Monetary Fund.

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    More about this item

    Keywords

    emerging market corporate debt; currency mismatch; liability dollarization; global financial conditions;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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