The Boom of Corporate Debt in Latin America: Carry Trade or Investment?

47 Pages Posted: 14 Sep 2017

See all articles by Jose de Gregorio

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Nicolás García

University of Chile

Mauricio Jara-Bertin

University of Chile - Business School

Date Written: July 6, 2017

Abstract

Previous research shows that due to a decline in international yields following the recent global crises corporations in emerging markets are issuing more debt in the international markets (offshore debt). Some evidence suggests that lower international rates encourage firms to abnormally accumulate cash holdings as a means to increase carry trade activities rather than to accumulate precautionary savings. Using a sample of nonfinancial listed firms for six Latin American countries, we analyze the relation between aggregated offshore debt, cash holdings, and investment. We find evidence in line with prior research that companies accumulate more cash when carry trade is more favorable. However, we also find that this cash holding anomaly is consistent with the precautionary savings argument. Offshore debt impacts next-period investment significantly. This result is robust and heterogeneous. We include other country-specific variables and check the robustness of our findings, and the main results hold.

Keywords: Emerging Markets, Latin America, Offshore Debt, Carry Trade, Precautionary Savings

JEL Classification: E4, G00, G30

Suggested Citation

de Gregorio, Jose and García, Nicolás and Jara-Bertin, Mauricio Alejandro, The Boom of Corporate Debt in Latin America: Carry Trade or Investment? (July 6, 2017). Available at SSRN: https://ssrn.com/abstract=3034290 or http://dx.doi.org/10.2139/ssrn.3034290

Jose De Gregorio

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Universidad de Chile ( email )

Ministry of Finance Teatinos l20 - Piso l2
Santiago
Chile

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nicolás García

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Mauricio Alejandro Jara-Bertin (Contact Author)

University of Chile - Business School ( email )

Diagonal Paraguay 257
Santiago, Chile
Chile

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