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on International Finance |
| By: | Nina Boyarchenko; Leonardo Elias |
| Abstract: | We study the determinants of active debt management through issuance and refinancing decisions for firms around the world. We leverage instrument-level data to create a comprehensive picture of the maturity, currency, and security type composition of firms' debt for a large cross-section of countries. At the instrument level, we estimate a predictive model of prepayment as a function of interest costs savings and maturity lengthening motives. We document that there is substantial heterogeneity in prepayment across bonds and loans and across firms, depending on their reliance on bank lending. While debt prepayment is generally successful at extending average maturities and lowering interest rate costs at the firm level, these benefits appear smaller for issuers in emerging market economies. Tight global credit conditions reduce both the ability to prepay debt early and the effectiveness of debt refinancing in reducing interest costs and rollover risk. Put together, our results show that the impact of global credit conditions on firms' debt structure can be traced back to how instrument-level prepayment incentives change over the global credit cycle. |
| Keywords: | debt structure; active debt management; global credit; prepayment |
| JEL: | G32 G15 F30 F44 |
| Date: | 2024–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99238 |
| By: | Palma Filep-Mosberger (Magyar Nemzeti Bank (Central Bank of Hungary)); Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Zhou Ren (Vienna Graduate School of Finance) |
| Abstract: | Local currency borrowers are statistically significantly affected by exchange rate fluctuations due to the bank lending channel. Using microdata on borrowers from Hungary, this study examines the spillover effects of foreign currency loans on local currency borrowers following an unexpected appreciation of the Swiss franc (CHF) in January 2015. CHF corporate loans are considered unhedged since the majority of the borrowers did not have income in CHF. Our analysis indicates that banks holding a larger portion of unhedged CHF corporate loans reduced their lending in local currency corporate loans after the shock. This relationship is robust across both extensive (loans terminated by a given bank and no new loans at a bank or banks different from the account holder bank or banks) and intensive (no new loans at its current bank or banks) margins. Further investigation into the mechanisms reveals that banks with more unhedged CHF corporate loans experience an increase in non†performing CHF loans post†shock, reducing their capital adequacy. Furthermore, the evidence in our paper suggests that reductions in banks’ local currency lending due to exchange rate shocks adversely affect the investment activity of small firms and increase their likelihood of default. |
| Keywords: | bank lending, exchange rate shock, currency mismatch, FX loans, credit. |
| JEL: | G15 G21 G28 G32 G33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:mnb:wpaper:2024/2 |
| By: | Vincenzo Quadrini (Univ. of Southern California, CEPRand NBER); Enrique G. Mendoza (University of Pennsylvania and NBER) |
| Abstract: | Research has shown that the unilateral accumulation of international reserves by a country can improve its own macro-financial stability. However, we show that when many countries accumulate reserves, the induced general equilibrium effects weaken financial and macroeconomic stability, especially for countries that do not accumulate reserves. The issuance of public debt by advanced economies has the opposite effect. We show these results with a two-region model where private defaultable debt has a productive use. Quantitative counterfactuals show that the surge in reserves (public debt) contributed to reduce (increase) world interest rates but also to increase (reduce) private leverage. This in turn increased (decreased) volatility in both emerging and advanced economies. |
| Date: | 2024–11–23 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:24-038 |