Debt composition and balance sheet effects of exchange rate depreciations: A firm-level analysis for Chile

José Miguel Benavente, Christian A. Johnson, Felipe G. Morandé

Research output: Contribution to journalArticlepeer-review

33 Scopus citations

Abstract

By studying the behavior of foreign currency borrowing, maturity, sales and the investment decisions of firms listed in the Chilean Stock Exchange from 1994 to 2001, this paper assesses whether in the aftermath of the Asian crisis of the late 1990s the depreciation of the local currency (Chilean peso) affected these firms' real and financial decisions. At issue is the contrast between a negative net-worth effect and a potential expansionary competitiveness effect for the tradable sector. We find that there exists little evidence that devaluations cause a positive impact on investment and sales for firms with dollar denominated debt. The maturity structure of Chilean firms is mainly explained by the size of the companies. Large firms will have a debt structure biased to higher maturities. Analyzing dollar denominated debt composition the evidence shows that larger firms maintained a higher proportion of dollar denominated debt reflecting the development of the financial sector in Chile.

Original languageEnglish
Pages (from-to)397-416
Number of pages20
JournalEmerging Markets Review
Volume4
Issue number4
DOIs
StatePublished - Dec 2003

Keywords

  • Balance sheet effects
  • Debt composition and maturity
  • Panel data

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