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Corporate Dollar Debt and Depreciations: Much Ado About Nothing?

Author

Listed:
  • Hoyt Bleakley

    (Assistant Professor, Graduate School of Business, University of Chicago)

  • Kevin Cowan

    (Senior Economist, Central Bank of Chile)

Abstract
Emerging markets firms often carry foreign-currency debt on their balance sheets. Following a depreciation, the expanding "peso" value of "dollar" liabilities could, via a net-worth effect, offset the expansionary competitiveness effect. To assess which effect dominates, we use accounting data (including the currency composition of liabilities) for 450+ nonfinancial firms in five Latin American countries in the 1990s. We find that firms holding more dollar debt do not invest less than their peso-indebted counterparts following a depreciation. We also show that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Hoyt Bleakley & Kevin Cowan, 2008. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 612-626, November.
    • Handle: RePEc:tpr:restat:v:90:y:2008:i:4:p:612-626
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