Financial Development, Exchange Rate Fluctuations and Debt Dollarization

Abstract

This paper examines how financial development influences the debt dollarization of nonfinancial firms in a sample of emerging market economies (EMEs). The macroeconomic channels are identified from an optimal portfolio allocation model and assessed empirically using the accounting information of nonfinancial firms from 21 EMEs during 2009–2017. The results show that financial development, measured by the private credit-to-GDP ratio, mainly reduces the influence of exchange rate volatility in determining a firm's debt currency composition, among other channels. Furthermore, the effect of exchange rate volatility becomes statistically insignificant beyond an estimated threshold credit-to-GDP ratio of 100 percent.

Do FX Interventions Lead to Higher FX Debt? Evidence from Firm-Level Data

“…Sebnem Kalemli-Ozcan and Shim (2018) use a large firm-level dataset consisting of 1,661,677 firm-year observations from 10 Asian EMs during 2002-2015, in which the share of FX debt for each firm is estimated from country-level FX debt statistics, and show that exchange rate appreciations increase disproportionately the leverage of firms with higher pre-appreciation shares of FX debt, with stronger effects for firms in the nontradable sector. Finally, Kim (2019) uses accounting information of over 9,000 nonfinancial firms across 21 major EMs (including seven from Asia) during 2009-2017, and finds that while exchange rate volatility is negatively associated with firms' dollar debt shares, this relationship gradually loses statistical significance with financial deepening, eventually becoming insignificant beyond a certain threshold level of financial depth. This paper also finds evidence in line with this result.…”

“…The firm-level dataset comes from Kim (2019), which is constructed using accounting information from the Capital IQ database provided by S&P Global Market Intelligence. Compared with other international firm-level databases such as Worldscope and ORBIS, Capital IQ has one crucial advantage for the purpose of this study: the availability of information on the currency composition of outstanding debt of individual firms.…”

“…1 This paper aims to explore the quantitative evidence of this unwelcome side-effect using a novel firm-level dataset, which comprises accounting information for a panel of 4,790 nonfinancial firms from 19 major EMs over the period of 2002 to 2017. The dataset, constructed in Kim (2019) using the Capital IQ database from S&P Market Intelligence, contains information on the directly recorded, not imputed, currency composition of outstanding debt for individual firms. To the best of the authors' knowledge, this is the largest international firm-level dataset with this important piece of information, covering EMs from all major regions of the world.…”

Borç Dolari̇zasyonunun Reel Sektör Kârliliği Üzeri̇ne Etki̇si̇

“…Panel veri tahmin yöntemi kullanılarak elde edilen bulgular, borç dolarizasyonu katsayısının % 34'e kadar pozitif olduğu aralıklarda imalat sanayi satışlarının ve büyümesinin iyileştiğini, dolarizasyonun % 34 -% 85 aralığında seyrettiği zamanlarda firmaların net satış büyüme oranının kötüleştiğini, dolarizasyonun % 85'ten büyük olduğu zamanlarda ise firma büyümesinin pozitif yönde tepki verdiğini göstermektedir. Kim (2019) çalışmasında yükselen piyasa ekonomileri örneğinde finansal gelişmenin, finansal olmayan firmaların borç dolarizasyon oranlarını nasıl etkilediğini araştırmıştır. 21 ülke örneğinden seçilen firmalara ait 2009-2017 dönemine ait verilerle yapılan çalışmadan elde edilen sonuçlar, "orijinal günah" lehinedir.…”

Facing the Tides

“…The theoretical framework developed in Kim (2019) produces two empirically testable hypotheses. First, the dollar debt ratio should be negatively related with exchange rate volatility.…”