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Author: Hoyt Bleakley Publisher: ISBN: Category : Debt Languages : en Pages : 60
Book Description
Much has been written recently about the problems for emerging markets that might result from a mismatch between foreign-currency denominated liabilities and assets (or income flows) denominated in local currency. In particular, several models, developed in the aftermath of financial crises of the late 1990s, suggest that the expansion in the "peso" value of "dollar" liabilities resulting from a devaluation could, via a net-worth effect, offset the expansionary competitiveness effect. Assessing which effect dominates, however, is ultimately an empirical matter. In this vein, we construct a new database with accounting information (including the currency composition of liabilities) for over 450 non-financial firms in five Latin American countries. We estimate, at the firm level, the reduced-form effect on investment of holding foreign-currency-denominated debt during an exchange-rate realignment. We consistently find that this effect is positive, contrary to the predicted sign of the net-worth effect. Additionally, we show that the estimated coefficient can be decomposed into competitiveness and net-worth effects, and we provide direct evidence that the competitiveness effect dominates the net-worth effect. We discuss some out-of-sample implications of these results.
Author: Hoyt Bleakley Publisher: ISBN: Category : Debt Languages : en Pages : 60
Book Description
Much has been written recently about the problems for emerging markets that might result from a mismatch between foreign-currency denominated liabilities and assets (or income flows) denominated in local currency. In particular, several models, developed in the aftermath of financial crises of the late 1990s, suggest that the expansion in the "peso" value of "dollar" liabilities resulting from a devaluation could, via a net-worth effect, offset the expansionary competitiveness effect. Assessing which effect dominates, however, is ultimately an empirical matter. In this vein, we construct a new database with accounting information (including the currency composition of liabilities) for over 450 non-financial firms in five Latin American countries. We estimate, at the firm level, the reduced-form effect on investment of holding foreign-currency-denominated debt during an exchange-rate realignment. We consistently find that this effect is positive, contrary to the predicted sign of the net-worth effect. Additionally, we show that the estimated coefficient can be decomposed into competitiveness and net-worth effects, and we provide direct evidence that the competitiveness effect dominates the net-worth effect. We discuss some out-of-sample implications of these results.
Author: Ms.Diana Ayala Pena Publisher: International Monetary Fund ISBN: 1513539205 Category : Business & Economics Languages : en Pages : 45
Book Description
This paper studies the determinants of shifts in debt composition among EM non-financial corporates. We show that institutions and macro fundamentals create an enabling environment for bond market development. During the recent boom episode, however, global cyclical factors accounted for most of the variation of bond shares in total corporate debt. The sensitivity to global factors appears to vary with relative bond market size—which we interpret to be associated with liquidity and easy entry and exit—rather than local fundamentals. Foreign bank linkages help explain why bond markets increasingly substituted for banks in channeling liquidity to EMs. Our results highlight the risk of capital flow reversal in EMs that benefited from the upturn in the global financial cycle mostly due to their liquid markets rather than strong fundamentals.
Author: Valentina G. Bruno Publisher: ISBN: Category : Corporate debt Languages : en Pages : 49
Book Description
How do emerging market corporates fare during periods of currency depreciation? We find that non-financial firms that exploit favorable global financing conditions to issue US dollar bonds and build cash balances are also those whose share price is most vulnerable to local currency depreciation. In particular, firms' vulnerability to currency depreciation derives less from the foreign currency debt as such, but from the cash balances that are built up by using foreign currency debt. Overall, our results point to a financial motive for dollar bond issuance by emerging market firms in carry trade-like transactions that leave them vulnerable in an environment of dollar strength.
Author: Bo Jiang Publisher: International Monetary Fund ISBN: 1498314023 Category : Business & Economics Languages : en Pages : 47
Book Description
Using a new firm-level dataset with comprehensive information on Asian firms’ FX liabilities, we show that Asia’s nonfinancial corporate sector is vulnerable to a tightening of global financial conditions. Higher global interest rates and exchange rate depreciation increase the probability of default of Asian firms. A 30 percent currency depreciation is associated with a two-notch downgrade in the corporate credit rating (e.g., from A to BBB+), resulting in 7 percent of Asian firms falling into bankruptcy. But the impact is nonlinear—as the firms’ FX liability increases, the balance sheet channel of exchange rate offsets, then dominates, the competitiveness channel. The balance sheet channel offsets the competitiveness channel when the share of U.S. dollar debt is between 10 and 20 percent. We also find that currency depreciation increases firm-level investment on average, but for firms with the share of FX liabilities above 20 percent, investment contracts with depreciation.
Author: Bo Jiang Publisher: International Monetary Fund ISBN: 1498311504 Category : Business & Economics Languages : en Pages : 47
Book Description
Using a new firm-level dataset with comprehensive information on Asian firms’ FX liabilities, we show that Asia’s nonfinancial corporate sector is vulnerable to a tightening of global financial conditions. Higher global interest rates and exchange rate depreciation increase the probability of default of Asian firms. A 30 percent currency depreciation is associated with a two-notch downgrade in the corporate credit rating (e.g., from A to BBB+), resulting in 7 percent of Asian firms falling into bankruptcy. But the impact is nonlinear—as the firms’ FX liability increases, the balance sheet channel of exchange rate offsets, then dominates, the competitiveness channel. The balance sheet channel offsets the competitiveness channel when the share of U.S. dollar debt is between 10 and 20 percent. We also find that currency depreciation increases firm-level investment on average, but for firms with the share of FX liabilities above 20 percent, investment contracts with depreciation.
Author: Mr.Julian T Chow Publisher: International Monetary Fund ISBN: 1475541422 Category : Business & Economics Languages : en Pages : 34
Book Description
The recent strong, sustained appreciation of the U.S. dollar raises questions about possible financial spillover effects for emerging markets and developing countries. This report finds that, unlike past episodes, emerging markets’ vulnerability has improved along a number of dimensions, though some risks persist (as identified in this report).
Author: Hoyt Bleakley
Author: Hoyt Bleakley
Author: Crawford Hoyt Bleakley
Author: Julian Caballero
Author: Ms.Diana Ayala Pena
Author: Valentina G. Bruno
Author: Bo Jiang
Author: Lawrence M. Sweet
Author: Bo Jiang
Author: Louis Omar Foster
Author: Mr.Julian T Chow