International Trade and the Currency Composition of Corporate Debt

Abstract

This paper investigates firm-level linkage between international finance and trade. Specifically, we present evidence that Korean firms rely more on financing in foreign currency if there is a positive export shock. We address the crucial endogeneity prob lem by capitalizing on South Korea’s as well as its trading partners’ demand shocks. We further show that global supply chains also play an important role as higher im portedintermediateinputsharesinducelowerforeigncurrencydebtshares. Ourfind ings point to a firm-level hedging channel and are pertinent to exchange rate policies that aim to reduce a (developing) country’s vulnerability to exchange rate shocks.