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Foreign currency debt financing, firm value, and risk : Evidence from Korea surrounding the global financial crisis

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  • Foreign currency debt financing, firm value, and risk
  • Bae, Sung C.; Kim, Hyeon Sook; Kwon, Taek Ho
  • John Wiley & Sons Australia, Ltd


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Title Foreign currency debt financing, firm value, and risk
Similar Titles
Sub Title

Evidence from Korea surrounding the global financial crisis

Material Type Articles
Author(English)

Bae, Sung C.; Kim, Hyeon Sook; Kwon, Taek Ho

Publisher

[Brisbane, Australia]:John Wiley & Sons Australia, Ltd

Date 2016-02
Journal Title; Vol./Issue Asia-Pacific Journal of Financial Studies:vol. 45(issue 1)
Pages 29
Subject Country South Korea(Asia and Pacific)
Language English
File Type Link
Subject Economy < Financial Policy
Economy < Economic System
Holding John Wiley & Sons Australia, Ltd

Abstract

We examine the valuation effect of foreign currency (FC) debt financing, relative to local currency (LC) debt financing. Employing extensive data from Korean firms during 2002–2012, we document strong evidence that firms using FC debt financing have significantly lower values than firms using LC debt financing. Even during the pre-global financial crisis period when the LC value appreciated, we find no evidence of a higher firm value associated with FC debt financing. Further analyses on the possible causes of the negative association of FC debt and firm value reject the conjecture of higher firm risk resulting from the usage of FC debt but lend empirical support for the inefficiency in hedging by Korean firms. While the heavy usages of currency derivatives by Korean firms with FC debt financing lead to lower firm risk, such usages fail to generate higher firm values mainly due to their inefficient and improper hedging with currency derivatives. (The rest omitted)