Foreign Currency Borrowings and Investments of Firms: Evidence from East Asian Countries

Posted: 24 Jun 2011  

Rashid Ameer

IPU Tertairy Institute

Date Written: June 21, 2011


In this paper, we examine the trend in the denomination of foreign currency borrowing and investments for a sample of listed firms over the period of 1995-2005. This time periods includes financial liberalization period as well as the Asian financial crisis. The unique feature of our study is that, we are the first to investigate the denomination of foreign borrowings and investments using firm-level data. We argue that the currency denomination decision is relevant for at least two reasons. First, firms may structure their financial obligations to match the currency composition of the expected cash inflows. In this way, the firms achieve a natural hedge and minimize the currency risk exposure. Second, firms may reduce their cost of capital by issuing debt in those currencies that offer the lowest effective borrowing costs. Our findings show that firm level borrowings are denominated in US$ and Japanese Yen, whereas firm level investments are primarily denominated in US$. Trend in the US$ denominated borrowings and investments remained higher prior to the Asian financial crisis. On the other hand, firm level investments have remained steady in US$. Firm specific factors such as size, past profitability, foreign sales, market power, and legal origin are important determinants of the foreign currency borrowings.

Keywords: Foreign Debt, Foreign Investment, Asia

Suggested Citation

Ameer, Rashid, Foreign Currency Borrowings and Investments of Firms: Evidence from East Asian Countries (June 21, 2011). Available at SSRN:

Rashid Ameer (Contact Author)

IPU Tertairy Institute ( email )

57 Aokautere Drive
Palmerston north
New Zealand

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