Emerging Market Corporate Leverage and Global Financial Conditions

December 15, 2016

Preview Citation

Format: Chicago

Adrian Alter, and Selim A Elekdag. Emerging Market Corporate Leverage and Global Financial Conditions, (USA: International Monetary Fund, 2016) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Corporate debt in emerging markets has risen significantly in recent years amid accommodative global financial conditions. This paper studies the relationship of leverage growth in emerging market (EM) firms to U.S. monetary conditions, and more broadly, to global financial conditions. We find that accommodative U.S. monetary conditions are reliably associated with faster EM leverage growth during the past decade. Specifically, a 1 percentage point decline in the U.S. policy rate corresponds to an appreciable increase in EM leverage growth of 9 basis points, on average (relative to the sample average leverage growth of 35 basis points per year). This impact is more pronounced for sectors dependent on external financing, for SMEs, and for firms in more financially open EMs with less flexible exchange rates. The findings suggest that global financial conditions affect EM firms’ leverage growth in part by influencing domestic interest rates and by relaxing corporate borrowing constraints.

Subject: Balance of payments, Capital account, Central bank policy rate, Exchange rate arrangements, Exchange rate flexibility, Financial markets, Financial sector development, Financial services, Foreign exchange, Small and medium enterprises

Keywords: Asset tangibility, Assets ratio, Capital account, Central bank policy rate, Corporate structure, Exchange rate, Exchange rate arrangements, Exchange rate flexibility, External finance, Financial sector development, Global, Global financial conditions, Individuals EMs, Leverage, Leverage growth, Leverage ratio, Monetary policy stance, Shadow rate, U.S. monetary policy, WP

Publication Details

Pages:

49
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/243
Stock No:

WPIEA2016243
ISBN:

9781475560480
ISSN:

1018-5941

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