Foreign Currency Borrowing by Small Firms
72 Pages Posted: 7 Feb 2009
Date Written: February 6, 2009
We examine, from a theoretical and empirical perspective, the determinants of foreign currency borrowing by small firms. Our empirical analysis is based on survey responses from 9,655 firms in 26 transition countries. We find that firms with foreign currency income are more likely to borrow in foreign currency, while firm-level distress costs and transparency hardly affect currency denomination. At the country level, we find that interest rate differentials and exchange rate volatility do not explain the foreign currency borrowing in our sample, while foreign bank presence and weak corporate governance encourage foreign currency borrowing.
Keywords: foreign currency borrowing, competition, banking sector, market structure.
JEL Classification: G21, G30, F34, F37
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