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(How) do credit market conditions affect firms' post-hedging outcomes? Evidence from bank lending standards and firms' currency exposure

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  • Bergbrant, Mikael C.
  • Hunter, Delroy M.

Abstract

Tighter bank lending standards could increase firms' post-hedging currency exposure by reducing firms' ability to fund hedging (funding channel) and/or by constraining counterparties' capacity to facilitate hedging (capacity channel). We find that tighter lending standards materially increase firms' exposure. In addition, we find no support for a funding-channel effect as firms' internal liquidity does not mitigate the impact of lending standards on exposure, indicating that the impact is through the capacity channel. Finally, we find a negative association between lending standards and aggregate transactions in currency derivatives, bolstering support for a capacity-channel effect. Our results have implications for firms' hedging policy and the bank lending channel of monetary policy transmission.

Suggested Citation

  • Bergbrant, Mikael C. & Hunter, Delroy M., 2018. "(How) do credit market conditions affect firms' post-hedging outcomes? Evidence from bank lending standards and firms' currency exposure," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 203-222.
    • Handle: RePEc:eee:corfin:v:50:y:2018:i:c:p:203-222
    DOI: 10.1016/j.jcorpfin.2018.03.004
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    More about this item

    Keywords

    Financial constraints; Credit constraints; Lending standards; Bank-credit channel; Credit rationing; Bank loan supply; Exchange rate exposure; Currency hedging;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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