IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/15-10.html
   My bibliography  Save this paper

Corporate Financing Trends and Balance Sheet Risks in Latin America

Author

Listed:
  • Fabiano Rodrigues Rodrigues Bastos
  • Herman Kamil
  • Bennett W Sutton

Abstract

Easy global liquidity conditions, stronger risk appetite and a retrenchment in cross-border bank lending led to a surge in emerging market firms’ bond issuance in international markets (what we term “The Bon(d)anza”). Using firm-level data for five large Latin American economies, we provide evidence of a significant change in companies’ external funding strategies and liability structures after 2010, as well as in the balance sheet risks that firms face. We find that stepped up bond issuance was mostly aimed at re-financing rather than funding investment projects, as firms extended the average duration of their debt while securing lower fixed-rates, reducing roll-over and interest rate risks. The shift towards safer maturity structures has come at the expense of a leveraging-up in foreign-currency-denominated financial debt in several countries— reversing a de-dollarization trend seen during the last decade. We also provide evidence that a substantial part of these bonds were issued through offshore vehicles, suggesting regulatory and tax arbitrage strategies. For some corporations, rising dollar debt and high leverage will be particularly taxing in an environment of US dollar strengthening, less buoyant commodity prices and slowing domestic activity.

Suggested Citation

  • Fabiano Rodrigues Rodrigues Bastos & Herman Kamil & Bennett W Sutton, 2015. "Corporate Financing Trends and Balance Sheet Risks in Latin America," IMF Working Papers 15/10, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/10
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=42613
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stefan Avdjiev & Michael Chui & Hyun Song Shin, 2014. "Non-financial corporations from emerging market economies and capital flows," BIS Quarterly Review, Bank for International Settlements, December.
    2. Philip Turner, 2014. "The global long-term interest rate, financial risks and policy choices in EMEs," BIS Working Papers 441, Bank for International Settlements.
    3. Claessens, Stijn & Tong, Hui & Wei, Shang-Jin, 2012. "From the financial crisis to the real economy: Using firm-level data to identify transmission channels," Journal of International Economics, Elsevier, vol. 88(2), pages 375-387.
    4. Michael Pomerleano & William Shaw, 2005. "Corporate Restructuring : Lessons from Experience," World Bank Publications, The World Bank, number 7373, February.
    5. Tatiana Didier & Sergio L Schmukler, 2014. "Debt Markets in Emerging Economies: Major Trends," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 56(2), pages 200-228, June.
    6. Calvo, Guillermo A, 2001. "Capital Markets and the Exchange Rate with Special Reference to the Dollarization Debate in Latin America," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(2), pages 312-334, May.
    7. Michael Chui & Ingo Fender & Vladyslav Sushko, 2014. "Risks related to EME corporate balance sheets: the role of leverage and currency mismatch," BIS Quarterly Review, Bank for International Settlements, September.
    8. Ricardo J. Caballero & Arvind Krishnamurthy, 2003. "Excessive Dollar Debt: Financial Development and Underinsurance," Journal of Finance, American Finance Association, vol. 58(2), pages 867-894, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Caballero, Julian & Panizza, Ugo & Powell, Andrew, 2015. "The second wave of global liquidity: Why are firms acting like financial intermediaries?," CEPR Discussion Papers 10926, C.E.P.R. Discussion Papers.
    2. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    3. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:15/10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi) The email address of this maintainer does not seem to be valid anymore. Please ask Hassan Zaidi to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.