Balance Sheet Effects in Colombian Non-Financial Firms

44 Pages Posted: 25 Apr 2017

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Sergio Restrepo

University of North Carolina (UNC) at Chapel Hill

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics

Juan Medellín

Fedesarrollo

César Pabón

Fedesarrollo

Date Written: November 2016

Abstract

After building up foreign currency-denominated (FC) liabilities over several years, the balance sheets of Colombian firms might be particularly vulnerable to a shift in external conditions. This paper undertakes four exercises in order to get a better understanding of these vulnerabilities. First, probit/logit estimations are used to identify the firm-level and macroeconomic determinants of FC borrowing by non-financial corporations. Second, the implications of the balance sheet vulnerability for real activity are investigated. Evidence is found of an FC balance sheet effect that transmits exchange rate fluctuations to firm-level investment, and show that that this effect is asymmetric, much greater for depreciations than for appreciations. Third, using logit/probit estimations, it is shown that not all firms use forward exchange derivatives solely to hedge their FC liabilities. This might be a consequence of exchange rate intervention by the monetary authority, protecting against extreme exchange rate misalignments. Finally, results are reported of a survey-based qualitative analysis on the hedging policies and activities of 12 large non-financial firms.

Keywords: Colombia, Depreciation, Dollar debt, Balance sheet effects

JEL Classification: E22, F31

Suggested Citation

Barajas, Adolfo and Restrepo, Sergio and Steiner, Roberto and Medellín, Juan and Pabón, César, Balance Sheet Effects in Colombian Non-Financial Firms (November 2016). IDB Working Paper No. IDB-WP-740. Available at SSRN: https://ssrn.com/abstract=2956703 or http://dx.doi.org/10.2139/ssrn.2956703

Adolfo Barajas (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

Sergio Restrepo

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+571 341 2240 (Phone)
+571 281 5771 (Fax)

Juan Medellín

Fedesarrollo

Calle 78 No 9-91
Santafe de Bogota, 75074
Colombia

César Pabón

Fedesarrollo

Calle 78 No 9-91
Santafe de Bogota, 75074
Colombia

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