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Balance Sheet Effects in Colombian Non-Financial Firms

Author

Listed:
  • Adolfo Barajas
  • Sergio Restrepo
  • Roberto Steiner
  • Juan Camilo Medellín
  • César Pabón

Abstract

After building up foreign currency denominated (FC) liabilities over several years, the balance sheets of Colombian firms might be particularly vulnerable to a shift in external conditions. We undertake four exercises in order to get a better understanding of these vulnerabilities. First, through probit/logit estimations we identify the firm-level and macroeconomic determinants of FC borrowing by non-financial corporations. Second, we investigate the implication of the balance sheet vulnerability for real activity. We find evidence of a FC balance sheet effect that transmits exchange rate fluctuations to firm-level investment, and show that this effect is asymmetric, much greater for depreciations than for appreciations. Third, using logit/probit estimations, we show that not all firms use forward exchange derivatives solely to hedge their FC liabilities. This might be a consequence of exchange rate intervention by the monetary authority, protecting against extreme exchange rate misalignments. Finally, we report results of a survey-based qualitative analysis on the hedging policies and activities of 12 large non-financial firms.

Suggested Citation

  • Adolfo Barajas & Sergio Restrepo & Roberto Steiner & Juan Camilo Medellín & César Pabón, 2016. "Balance Sheet Effects in Colombian Non-Financial Firms," Working Papers Series. Documentos de Trabajo 15228, Fedesarrollo.
    • Handle: RePEc:col:000123:015228
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    References listed on IDEAS

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    2. Mr. Fabiano Rodrigues Rodrigues Bastos & Herman Kamil & Mr. Bennett W Sutton, 2015. "Corporate Financing Trends and Balance Sheet Risks in Latin America," IMF Working Papers 2015/010, International Monetary Fund.
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    Cited by:

    1. Laura Alfaro & Alejandro Cuñat & Harald Fadinger & Yanping Liu, 2017. "The Real Exchange Rate, Innovation and Asymmetries and Hysteresis," Harvard Business School Working Papers 18-044, Harvard Business School, revised May 2018.
    2. Ashis Kumar Pradhan & Gourishankar S. Hiremath, 2021. "Effects of foreign currency debt on investment of the firms in emerging economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4993-5004, October.
    3. Caballero, Julián, 2021. "Corporate dollar debt and depreciations: All’s well that ends well?," Journal of Banking & Finance, Elsevier, vol. 130(C).
    4. Laura Alfaro & Alejandro Cuñat & Harald Fadinger & Yanping Liu, 2023. "The Real Exchange Rate, Innovation, and Productivity," Journal of the European Economic Association, European Economic Association, vol. 21(2), pages 637-689.
    5. Alfaro, Laura & Cunat, Alejandro & Liu, Yanping & Fadinger, Harald, 2018. "The real exchange rate, innovation and productivity : regional heterogeneity, asymmetries and hysteresis," Working Papers 18-05, University of Mannheim, Department of Economics.
    6. Maria Paula Vieira Cicogna & Rudinei Toneto Jr & Mauricio Ribeiro do Valle & Wilson Tarantin Junior, 2021. "The Predominance of Balance Sheet Effect versus Competitiveness Effect of Exchange Rate on Brazilian Companies," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(12), pages 107-107, December.

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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