We quantify the effect of exchange rate fluctuations on firm leverage. When home currency appreciates, firms who hold foreign currency debt and local currency assets observe higher net worth as appreciation lowers the value of their foreign currency debt. These firms can borrow more as a result...

One of the explanations for global imbalances is the self-financing behavior of credit-constrained firms in rapidly growing emerging markets. We use an extensive firm-level data set from several Asian countries during 2002–2011, and test the micro foundation of this theory by estimating the...