IDEAS home Printed from https://ideas.repec.org/a/eee/jimfin/v138y2023ics0261560623001432.html
   My bibliography  Save this article

Challenges in promoting local currency corporate bonds in Asia: Evidence from international business relationships

Author

Listed:
  • Ho, Edmund Ho Cheung
  • Law, Keith

Abstract

In Asia, in contrast to government bond markets where reliance on foreign currency bonds has diminished after proactive policy initiatives, the corporate sector still has a large share of foreign currency bond outstanding. We analyse this phenomenon by examining the driving factors behind Asian corporate bonds’ currency choice (local currencies versus US dollar). Our results suggest that, although the successful market developments reduced barriers for Asian firms to issue in local currencies, such constructive effect was inevitably limited by firms’ FX exposures induced by Asian firms’ rapid involvement in international business during the same period. In addition, US dollar bond issuances in the region are more associated with FX funding needs from the expenditure side rather than natural hedging against FX revenue, implying that the problem of currency mismatch likely still exist among Asian firms. As such, Asian policymakers should devote more attention to firms with more cross-border payments when scrutinising the corporate sector’s financial vulnerability. They should also continue fostering the development of local currency bond markets and spur the use of local currencies in invoicing regional business transactions.

Suggested Citation

  • Ho, Edmund Ho Cheung & Law, Keith, 2023. "Challenges in promoting local currency corporate bonds in Asia: Evidence from international business relationships," Journal of International Money and Finance, Elsevier, vol. 138(C).
  • Handle: RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001432
    DOI: 10.1016/j.jimonfin.2023.102942
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0261560623001432
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jimonfin.2023.102942?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Christos Pantzalis & Betty J Simkins & Paul A Laux, 2001. "Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 32(4), pages 793-812, December.
    2. Wenxin Du & Jesse Schreger, 2022. "Sovereign Risk, Currency Risk, and Corporate Balance Sheets," The Review of Financial Studies, Society for Financial Studies, vol. 35(10), pages 4587-4629.
    3. Valentina Bruno & Hyun Song Shin, 2017. "Global Dollar Credit and Carry Trades: A Firm-Level Analysis," The Review of Financial Studies, Society for Financial Studies, vol. 30(3), pages 703-749.
    4. Susan Black & Anella Munro, 2010. "Why issue bonds offshore?," BIS Papers chapters, in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 97-144, Bank for International Settlements.
    5. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    6. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 459-472, November.
    7. Boris Hofmann & Nikhil Patel & Steve Pak Yeung Wu, 2022. "Original sin redux: a model-based evaluation," BIS Working Papers 1004, Bank for International Settlements.
    8. Maurizio Michael Habib & Mark Joy, 2010. "Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 601-626.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wu, WenTing & Chen, XiaoQian & Zvarych, Roman & Huang, WeiLun, 2024. "The Stackelberg duel between Central Bank Digital Currencies and private payment titans in China," Technological Forecasting and Social Change, Elsevier, vol. 200(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ryan Niladri Banerjee & Boris Hofmann & Aaron Mehrotra, 2020. "Corporate investment and the exchange rate: The financial channel," BIS Working Papers 839, Bank for International Settlements.
    2. Sergio Florez-Orrego & Matteo Maggiori & Jesse Schreger & Ziwen Sun & Serdil Tinda, 2024. "Global Capital Allocation," Annual Review of Economics, Annual Reviews, vol. 16(1), pages 623-653, August.
    3. Bacchetta, Philippe & Cordonier, Rachel & Merrouche, Ouarda, 2023. "The rise in foreign currency bonds: The role of US monetary policy and capital controls," Journal of International Economics, Elsevier, vol. 140(C).
    4. Mizen, Paul & Packer, Frank & Remolona, Eli & Tsoukas, Serafeim, 2021. "Original sin in corporate finance: New evidence from Asian bond issuers in onshore and offshore markets," Journal of International Money and Finance, Elsevier, vol. 119(C).
    5. Maeng, F. S., 2024. "Default, Inflation Expectations, and the Currency Denomination of Sovereign Bonds," Cambridge Working Papers in Economics 2438, Faculty of Economics, University of Cambridge.
    6. Ryan Banerjee & Boris Hofmann & Aaron Mehrotra, 2022. "Corporate investment and the exchange rate: The financial channel," International Finance, Wiley Blackwell, vol. 25(3), pages 296-312, December.
    7. Hardy, Bryan, 2023. "Foreign currency borrowing, balance sheet shocks, and real outcomes," Journal of International Money and Finance, Elsevier, vol. 139(C).
    8. Paul Mizen & Frank Packer & Eli Remolona & Serafeim Tsoukas, 2012. "Why do firms issue abroad? Lessons from onshore and offshore corporate bond finance in Asian emerging markets," Working Papers 2012_16, Business School - Economics, University of Glasgow.
    9. Gozzi, Juan Carlos & Levine, Ross & Peria, Maria Soledad Martinez & Schmukler, Sergio L., 2012. "How firms use domestic and international corporate bond markets," Policy Research Working Paper Series 6209, The World Bank.
    10. Damiano Sandri & Paolo Cavallino, 2016. "The Expansionary Lower Bound: Currency Mismatches and Monetary Spillovers," 2016 Meeting Papers 1250, Society for Economic Dynamics.
    11. Paul Mizen & Frank Packer & Eli Remolona & Serafeim Tsoukas, 2014. "Capital structure and the issuance of corporate bonds in emerging Asia," Chapters, in: Iwan J. Azis & Hyun S. Shin (ed.), Global Shock, Risks, and Asian Financial Reform, chapter 13, pages 510-540, Edward Elgar Publishing.
    12. Caballero, Julián, 2021. "Corporate dollar debt and depreciations: All’s well that ends well?," Journal of Banking & Finance, Elsevier, vol. 130(C).
    13. Galvez, Julio & Gambacorta, Leonardo & Mayordomo, Sergio & Serena, Jose Maria, 2021. "Dollar borrowing, firm credit risk, and FX-hedged funding opportunities," Journal of Corporate Finance, Elsevier, vol. 68(C).
    14. Jieun Lee, 2023. "Dollar and government bond liquidity: evidence from Korea," BIS Working Papers 1145, Bank for International Settlements.
    15. Huang, Anni & Kishor, N. Kundan, 2017. "Corporate Overseas Debt Issuance in the Context of Global Liquidity Transmission," MPRA Paper 83476, University Library of Munich, Germany.
    16. Han, Bo, 2022. "Currency denomination and borrowing cost: Evidence from global bonds," Journal of Multinational Financial Management, Elsevier, vol. 66(C).
    17. Jin, Jing & Liao, Rose C. & Loureiro, Gilberto, 2021. "The diverse effects of currency crises on multinational and local firms: The use of foreign currency debt," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    18. Song, Sangcheol, 2015. "Exchange rate challenges, flexible intra-firm adjustments, and subsidiary longevity," Journal of World Business, Elsevier, vol. 50(1), pages 36-45.
    19. Jiao, Yang, 2024. "Financial crises, bailouts and monetary policy in open economies," Journal of International Economics, Elsevier, vol. 151(C).
    20. Luna Azahara Romo González, 2016. "The drivers of European banks’ US dollar debt issuance: opportunistic funding in times of crisis?," Working Papers 1611, Banco de España.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:138:y:2023:i:c:s0261560623001432. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30443 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.