External Commercial Borrowings and Balance Sheet Effects of Exchange Rate in India: A Firm Level Analysis

27 Pages Posted: 31 Aug 2020

See all articles by Gourishankar S. Hiremath

Gourishankar S. Hiremath

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences

Date Written: April 26, 2016

Abstract

The depreciation of currency expected to increase the cost of borrowing of the firms that denominate debt in foreign currency and thus adversely affect the investment and net worth of the firms. This study examines the effect of currency depreciation on investment of those firms that hold external commercial borrowings (ECB) in India. The sample data comprises non-financial firms for the period 2004 to 2015 and panel regression quantifies the balance sheet and competitiveness effect. This study does not find significant negative effect of rupee depreciation on investment of ECB indebted firms. This study shows that sample ECB firms have some natural hedge against exchange rate volatility. The performance of listed firms in terms of investment and income is better than that of unlisted firms. The findings of the study imply the effectiveness of current exchange rate regime and prudential norms laid by RBI for external commercial borrowings.

Keywords: External commercial borrowings, foreign currency debt,exchange rate, investment; exports sales; competitiveness; balance sheet

JEL Classification: F21, F31, F34, F41

Suggested Citation

Hiremath, Gourishankar S., External Commercial Borrowings and Balance Sheet Effects of Exchange Rate in India: A Firm Level Analysis (April 26, 2016). Available at SSRN: https://ssrn.com/abstract=3658325 or http://dx.doi.org/10.2139/ssrn.3658325

Gourishankar S. Hiremath (Contact Author)

Indian Institute of Technology (IIT), Kharagpur - Department of Humanities and Social Sciences ( email )

Kharagpur, West Bengal 721302
India

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
95
Abstract Views
432
rank
391,372
PlumX Metrics