Effects of Foreign-Currency Debt on Non-Financial Latin American Firms: Evidence from the 2000s
This paper empirically tests the effects of foreign currency debt on economic performance and investment behavior in non-financial firms in six Latin America and Caribbean countries. It is found find that domestic-currency depreciations may surprisingly increase the exchange-rate induced profits of particularly highly foreign currency-indebted firms (especially those that are foreign owned and others with foreign links). Such depreciations have only a mild correlation with gross profits. Foreign-currency debt seems to have ambiguous effects on fixed investment purchases behavior, possibly attributable to non-financial firms' behavior as financial intermediaries. This effect tends to vanish when financial derivatives are considered.
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| Format: | Technical Notes biblioteca |
| Language: | English |
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Inter-American Development Bank
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| Subjects: | Foreign Currency Debt, Firm Performance, Financial Bond, Interest Rate, Corporate Debt, Risk Management, Foreign Exchange, F34 - International Lending and Debt Problems, G32 - Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill, credit constraints;commodity exporters;foreign currency debt;firm performance, |
| Online Access: | http://dx.doi.org/10.18235/0009316 https://publications.iadb.org/en/effects-foreign-currency-debt-non-financial-latin-american-firms-evidence-2000s |
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| Summary: | This paper empirically tests the effects of foreign currency debt on economic performance and investment behavior in non-financial firms in six Latin America and Caribbean countries. It is found find that domestic-currency depreciations may surprisingly increase the exchange-rate induced profits of particularly highly foreign currency-indebted firms (especially those that are foreign owned and others with foreign links). Such depreciations have only a mild correlation with gross profits. Foreign-currency debt seems to have ambiguous effects on fixed investment purchases behavior, possibly attributable to non-financial firms' behavior as financial intermediaries. This effect tends to vanish when financial derivatives are considered. |
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