{
  "title": "Corporate Investment and the Real Exchange Rate",
  "publication": "IMF Working Papers, August 4, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/08/04/corporate-investment-and-the-real-exchange-rate-45156",
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  "summary": "We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- Research examines the relationship between real exchange rate depreciations and indicators of firm performance.\n- Sample: more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period.\n- Main empirical findings: depreciations boost profits, investment, and sales for certain firms.\n- Authors’ interpretation: effects are consistent with depreciations boosting internal financing opportunities by reducing real wages, thereby spurring investment.\n- Effects on firm performance are enduring, including in the market valuation of firms."
    },
    {
      "heading": "Key empirical findings",
      "content": "- Depreciations boost:\n  - profits of firms that are more financially-constrained;\n  - investment of firms that are more financially-constrained;\n  - sales of firms that are more financially-constrained.\n- Depreciations have stronger positive effects for firms with higher labor shares.\n- Effects persist into market valuation measures of firms."
    },
    {
      "heading": "Proposed mechanism / interpretation",
      "content": "- Balance sheet channel emphasized: depreciations reduce real wages, which raises internal financing available to firms.\n- Increased internal financing facilitates higher firm investment, especially for financially-constrained and labor-intensive firms."
    },
    {
      "heading": "Data and scope",
      "content": "- Firm-level sample size: more than 30,000 firms.\n- Country coverage: 66 (advanced and emerging market) countries.\n- Time period: 2000-2011."
    },
    {
      "heading": "Subjects and keywords (as listed)",
      "content": "- Subjects: Corporate investment, Depreciation, Economic theory, Financial frictions, Financial statements, Labor, Labor share, National accounts, Public financial management (PFM)\n- Keywords: balance sheet channel, corporate investment, Depreciation, exchange rate, external finance, Financial frictions, Financial statements, firm balance sheet channel, firm growth, firm investment, firm's labor share, Global, investment profitability, labor intensity, labor share, labor-intensity firm, payroll information, payroll share, profitability expectation, real effects of depreciation, real exchange rate, unobserved firm-level, WP\n\nSource: IMF Working Paper \"Corporate Investment and the Real Exchange Rate\" by Mai Dao, Camelia Minoiu, and Jonathan David Ostry; August 4, 2017; https://www.imf.org/en/publications/wp/issues/2017/08/04/corporate-investment-and-the-real-exchange-rate-45156\n\n---\n\n Content in this bundle\n\n- Corporate Investment and the Real Exchange Rate, WP/17/183, August 2017\n  - Corporate Investment and the Real Exchange Rate, WP/17/183, August 2017 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Corporate Investment and the Real Exchange Rate, WP/17/183, August 2017 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/08/04/corporate-investment-and-the-real-exchange-rate-45156"
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    "Authors: Mai Dao, Camelia Minoiu, Jonathan David Ostry",
    "Published: August 4, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484313749.001",
    "Research examines the relationship between real exchange rate depreciations and indicators of firm performance.",
    "Sample: more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period.",
    "Main empirical findings: depreciations boost profits, investment, and sales for certain firms.",
    "Authors’ interpretation: effects are consistent with depreciations boosting internal financing opportunities by reducing real wages, thereby spurring investment.",
    "Effects on firm performance are enduring, including in the market valuation of firms.",
    "Depreciations boost:",
    "Depreciations have stronger positive effects for firms with higher labor shares.",
    "Effects persist into market valuation measures of firms.",
    "Balance sheet channel emphasized: depreciations reduce real wages, which raises internal financing available to firms.",
    "Increased internal financing facilitates higher firm investment, especially for financially-constrained and labor-intensive firms.",
    "Firm-level sample size: more than 30,000 firms.",
    "Country coverage: 66 (advanced and emerging market) countries.",
    "Time period: 2000-2011.",
    "Subjects: Corporate investment, Depreciation, Economic theory, Financial frictions, Financial statements, Labor, Labor share, National accounts, Public financial management (PFM)",
    "Keywords: balance sheet channel, corporate investment, Depreciation, exchange rate, external finance, Financial frictions, Financial statements, firm balance sheet channel, firm growth, firm investment, firm's labor share, Global, investment profitability, labor intensity, labor share, labor-intensity firm, payroll information, payroll share, profitability expectation, real effects of depreciation, real exchange rate, unobserved firm-level, WP",
    "**Corporate Investment and the Real Exchange Rate, WP/17/183, August 2017**"
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