Using a new firm-level dataset with comprehensive information on Asian firms' FX liabilities, we show that Asia's nonfinancial corporate sector is vulnerable to a tightening of global financial conditions. Higher global interest rates and exchange rate depreciation increase the probability...

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Bibliographic Details

Main Authors:	Jiang, Bo (Author), Saadi-Sedik, Tahsin (Author)
Format:	Electronic eBook
Language:	English
Published:	[Washington, D.C.] : Inte/ rnational Monetary Fund, [2019]
Series:	IMF working paper ; WP/19/93.
Subjects:	Business cycles > Asia. Financial crises > Asia. International business enterprises > Asia. Cycles économiques > Asie. Entreprises multinationales > Asie. Business cycles Financial crises International business enterprises Asia
Online Access:	DE-862 DE-863
Summary:	Using a new firm-level dataset with comprehensive information on Asian firms' FX liabilities, we show that Asia's nonfinancial corporate sector is vulnerable to a tightening of global financial conditions. Higher global interest rates and exchange rate depreciation increase the probability of default of Asian firms. A 30 percent currency depreciation is associated with a two-notch downgrade in the corporate credit rating (e.g., from A to BBB+), resulting in 7 percent of Asian firms falling into bankruptcy. But the impact is nonlinear--as the firms' FX liability increases, the balance sheet channel of exchange rate offsets, then dominates, the competitiveness channel. The balance sheet channel offsets the competitiveness channel when the share of U.S. dollar debt is between 10 and 20 percent. We also find that currency depreciation increases firm-level investment on average, but for firms with the share of FX liabilities above 20 percent, investment contracts with depreciation.
Physical Description:	1 online resource (48 pages)
ISBN:	1498311504 1498314058 9781498311502 9781498314053