Essays on corporate foreign currency debt
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2025-08-29
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Schiozer, Rafael Felipe
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This dissertation examines the drivers and consequences of corporate foreign currency debt through three papers. Using novel firm-level data spanning multiple countries and decades, this research provides comprehensive insights into how macroeconomic policies, global financial conditions, and firm characteristics shape corporate financing decisions in international markets. Chapter 1 investigates how debt in foreign currency (DFC) affects firms’ capital structure dynamics, specifically examining the speed of adjustment toward target leverage. Using data from 37 countries (2002-2021) and employing selection models to address endogeneity, the paper finds that for firms without DFC, the adjustments toward target leverage vary with country features, with emerging market firms adjusting more slowly than their counterparts in developed markets. For DFC firms, however, the negative marginal effect of DFC is smaller, resulting in similar adjustment speeds across developed and emerging economies. At the firm level, this negative effect is less pronounced in firms that use derivatives, consistent with the idea that financial hedging mitigates the effects of exchange rate variations on the deviations from the firms’ optimal leverage. Chapter 2 explores how firms adjust their DFC composition in response to global funding shocks, focusing on the maturity substitution channel. Exploiting the 2013 Taper Tantrum as a quasi-natural experiment, it shows that firms strategically rebalance their foreign currency debt structure by reducing short-term DFC (-11.7 percentage points) while increasing long-term DFC (12.1 percentage points). Importantly, these financing adjustments do not affect real outcomes such as investment or cash holdings, indicating that firms successfully insulate their operations from funding decisions. Chapter 3 examines how the Impossible Trinity constrains corporate DFC decisions, using data from 83 countries (2002-2020). It demonstrates that exchange rate stability, capital account openness, and monetary independence have heterogeneous effects on DFC that vary systematically with debt maturity, economic development, and firm characteristics. Causal identification through policy regime switches (Australia’s financial liberalization, Switzerland’s exchange rate floor abandonment, Japan’s Abenomics, and Brazil’s capital controls) confirms that macroeconomic policy changes significantly influence corporate financing decisions. This dissertation contributes to the literature by: (1) providing novel evidence of adjustment costs of foreign currency borrowing through slower capital structure adjustment; (2) identifying a maturity substitution channel through which firms manage exposure to funding shocks; (3) establishing the empirical link between the monetary policy trilemma and corporate financing decisions; and (4) demonstrating how institutional development mediates the transmission of macroeconomic policies to firm behavior.