Journal of Corporate Finance Vol. 50 2018
(How) do credit market conditions affect firms' post-hedging outcomes? Evidence from bank lending standards and firms' currency exposure
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.
- DOI
- 10.1016/j.jcorpfin.2018.03.004
- Volume
- 50
- Pages
- 203-222
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref