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Invoice Currency Choice under Financial Constraints and Bargaining: Evidence from Japanese SMEs

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Listed:
  • Mizuki GOTO
  • Kazunobu HAYAKAWA
  • Satoshi KOIBUCHI
  • Taiyo YOSHIMI

Abstract

Recent empirical studies explore factors behind the currency invoicing pattern in exports of listed firms by using questionnaire surveys; however, there is insufficient evidence regarding small and medium-sized enterprises (SMEs). We conducted a questionnaire survey for 2,100 unlisted manufacturers engaged in exports during the 2010s and received responses from 300 firms. By constructing a database with invoice currency choice and trade partner by export destination, we empirically examine the determinants of invoice currency choice in export using the probit model estimation. We confirm that the major determinants of currency invoicing in existing research effectively work as determinants of currency invoicing by SMEs. After controlling for various determinants, we found that financial constraints play an important role in their invoice currency choice. The firms with deteriorated capital ratios and rapid sales growth depend more on the producer's currency invoicing. The results are confirmed through a robustness test using detailed financial data, showing that the firms with lower capital ratios, lower liquidity positions, and greater investment opportunities tend to use the producer's currency invoicing. These novel findings are consistent with the predictions from the theoretical research on the bargaining model of currency invoicing and corporate risk management for hedging.

Suggested Citation

  • Mizuki GOTO & Kazunobu HAYAKAWA & Satoshi KOIBUCHI & Taiyo YOSHIMI, 2021. "Invoice Currency Choice under Financial Constraints and Bargaining: Evidence from Japanese SMEs," Discussion papers 21080, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:21080
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    References listed on IDEAS

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    3. Froot, Kenneth A. & Scharfstein, David S. & Stein, Jeremy C., 2008. "Risk management: coordinating corporate investment and financing policies," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 48(1), January.
    4. Geczy, Christopher & Minton, Bernadette A & Schrand, Catherine, 1997. "Why Firms Use Currency Derivatives," Journal of Finance, American Finance Association, vol. 52(4), pages 1323-1354, September.
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