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Balance Sheet and Currency Mismatch: Evidence for Peruvian Firms

Author

Listed:
  • Nelson R. Ramírez-Rondán

    (Central Bank of Peru)

Abstract
In the Peruvian economy, as in other emerging economies, a significant portion of the debt held by firms is denominated in US dollars. While an exchange rate depreciation likely increases firm debt and influences plans of investment and production, literature finds weak or no evidence of this balance sheet effect. In this paper I argue that this effect is observed in firms with a significant currency mismatch. I estimate the currency mismatch (defined as assets minus liabilities in USD and expressed as a percentage of total assets in domestic currency) from which the exchange rate has negative effects on firms' investment. Using financial information from 74 non-financial Peruvian firms from 2002 to 2014, I find significant balance sheet effects for firms with a currency mismatch below -10.4 percent.

Suggested Citation

  • Nelson R. Ramírez-Rondán, 2016. "Balance Sheet and Currency Mismatch: Evidence for Peruvian Firms," Working Papers 85, Peruvian Economic Association.
    • Handle: RePEc:apc:wpaper:2016-085
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    1. Alfredo Villca & Alejandro Torres-García, 2023. "Commodity price shocks and the business cycles in emerging economies: the role of banking system balance sheets," Empirical Economics, Springer, vol. 65(5), pages 2039-2063, November.

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    More about this item

    Keywords

    Balance Sheet; Dollar Debt; Peru;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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