Corporate Debt Structure with Home and International Currency Bias

Abstract

We explore the consequences of global capital market segmentation by currency for the optimal currency composition of borrowing by firms. Global
bond portfolios are driven by the currency of denomination of assets as investors prefer to lend in their home currency or the international currency, the US Dollar. Larger and more productive firms select into foreign currency issuance. International segmentation results in a quantity-dimension of the exorbitant privilege whereby US firms that only issue in the domestic currency benefit from being able to more easily borrow from global investors.

Keywords: Capital Flows, Exorbitant Privilege, Home Currency Bias, Reserve Currencies

JEL Classification: E42, E44, F3, F55, G11, G15, G23, G28