Information Asymmetry and Foreign Currency Borrowing by Small Firms
Journal
Comparative Economic Studies
ISSN
0888-7233
ISSN-Digital
1478-3320
Type
journal article
Date Issued
2014-03-01
Author(s)
Abstract
We model how an information asymmetry between the lending bank and the applying firm about the currency structure of firm revenues may affect loan currency choice. Our framework features a trade-off between the lower cost of foreign currency debt and the costs of currency induced loan default. We show that under imperfect information about firm revenues more local earners choose foreign currency loans, as they do not bear the full cost of the corresponding credit risk. This result is consistent with recent evidence showing that information asymmetries may increase foreign currency borrowing by retail clients in the transition economies.
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=> http://www.palgrave-journals.com/ces/journal/vaop/ncurrent/abs/ces20139a.html
Language
English
Keywords
foreign currency borrowing
competition
banking sector
market structure
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Palgrave Macmillan
Publisher place
United Kingdom
Volume
56
Number
1
Start page
110
End page
131
Pages
22
Subject(s)
Eprints ID
225128