Primary Research Focuses: International Finance and Macroeconomics

Secondary Research Focus: Monetary Economics

References: 

• Guido Lorenzoni (Committee Chair)
• Rohan Kekre
• Mikhail Golosov

Job Market Paper: “Dollar Movements, Borrowing Constraints, and Firm Investment”

[Abstract] How do firms in emerging markets respond to global financial tightening? This paper shows that their responses depend on how they borrow. When the U.S. dollar strengthens, indicating financial tightening, firms that borrow against collateral face tighter credit because the local-currency value of their assets falls. Firms that borrow against earnings are less affected, since their borrowing capacity depends on operating cash flows rather than asset values. For exporters, dollar-linked revenues even provide a partial cushion. Using bond issuance data from LSEG’s SDC Platinum, I classify each issue by whether repayment relies on assets or on earnings, and link these classifications to firm–quarter financial statements from Worldscope for publicly listed non-financial firms in eighteen emerging market economies between 2001 and 2019. Three facts emerge. First, when the dollar rises, investment declines among collateral-based borrowers but remains broadly stable for earnings-based borrowers. Second, among earnings-based firms, higher export intensity dampens the impact of dollar movements. Third, new borrowing shifts toward earnings-based contracts as the dollar strengthens, indicating firms’ active adjustment to external conditions. The aggregate effect of global financial tightening therefore depends on the composition of borrowing types and the distribution of export intensity. The results map dollar movements into observable firm exposures—financing mode and export share—implying stronger amplification when borrowing limits hinge on collateral valuations and weaker transmission when they hinge on cash flows.