Currency Depreciation and Emerging Market Corporate Distress

53 Pages Posted: 5 Nov 2018

See all articles by Valentina Bruno

Valentina Bruno

American University - Department of Finance and Real Estate; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Hyun Song Shin

Bank for International Settlements (BIS)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2018

Abstract

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.

Keywords: currency mismatch, emerging market corporate debt, global financial conditions, liability dollarization

JEL Classification: E44, G15

Suggested Citation

Bruno, Valentina Giulia and Shin, Hyun Song, Currency Depreciation and Emerging Market Corporate Distress (November 2018). CEPR Discussion Paper No. DP13298, Available at SSRN: https://ssrn.com/abstract=3278673

Valentina Giulia Bruno (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Hyun Song Shin

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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