Corporate dollar debt and depreciations: All’s well that ends well?

This paper explores the effect of depreciations on investment when firms hold foreign currency debt. The paper employs a novel database of stocks of foreign currency bonds issued by seven thousand firms from emerging economies in 2000–2015. The results indicate that currency depreciations exert a significant negative effect on balance sheets. A depreciation of 10 percent is associated with a ratio of capital expenditures to assets of between 0.3 and 0.6 percentage points less for firms with outstanding stocks of foreign currency bonds in the year following the depreciation. This result is robust to different inference techniques and to controlling for a large number of potential confounders.