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Firm-to-Firm Financial Linkages and Dollar Risk Transmission

Author

Listed:
  • Bryan Hardy
  • Felipe Saffie
  • Ina Simonovska

Abstract

We study how U.S. dollar fluctuations transmit through domestic supply chains in emerging markets. Large firms borrow in foreign currency and extend trade credit to domestic partners, exposing the supply chain to exchange rate risk. We develop a model where financially constrained suppliers pass through shocks to buyers, while unconstrained firms absorb them. Using quarterly firm-level data from 19 emerging markets, we provide empirical evidence consistent with the model's predictions. We find that even highly exposed firms reduce trade credit only modestly following a depreciation, while accepting large profit losses, suggesting that firm-to-firm credit relationships partially shield downstream firms from financial shocks.

Suggested Citation

  • Bryan Hardy & Felipe Saffie & Ina Simonovska, 2026. "Firm-to-Firm Financial Linkages and Dollar Risk Transmission," CESifo Working Paper Series 12598, CESifo.
    • Handle: RePEc:ces:ceswps:_12598
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    References listed on IDEAS

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    1. Esposito, Federico & Hassan, Fadi, 2023. "Import competition, trade credit and financial frictions in general equilibrium," LSE Research Online Documents on Economics 121378, London School of Economics and Political Science, LSE Library.
    2. María Alejandra Amado, 2022. "Macroprudential FX Regulations: Sacrificing Small Firms for Stability?," Working Papers 2236, Banco de España.
    3. Se-Jik Kim & Hyun Song Shin, 2023. "Theory of supply chains: a working capital approach," BIS Working Papers 1070, Bank for International Settlements.
    4. Niepmann, Friederike & Schmidt-Eisenlohr, Tim, 2022. "Foreign currency loans and credit risk: Evidence from U.S. banks," Journal of International Economics, Elsevier, vol. 135(C).
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    2. Hardy, Bryan & Saffie, Felipe, 2024. "From carry trades to trade credit: Financial intermediation by non-financial corporations," Journal of International Economics, Elsevier, vol. 152(C).

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    More about this item

    Keywords

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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