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Firm-to-Firm Financial Linkages and Dollar Risk Transmission

Author

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  • Bryan Hardy
  • Felipe E. 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 test and confirm 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 E. Saffie & Ina Simonovska, 2023. "Firm-to-Firm Financial Linkages and Dollar Risk Transmission," NBER Working Papers 31078, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:31078
    Note: CF EFG IFM ITI
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    Cited by:

    1. 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).

    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • F2 - International Economics - - International Factor Movements and International Business
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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