Why do firms default on their foreign currency loans? The case of Hungary
I isolate the effect of the choice of foreign currency on the loan performance of firms borrowing in different currencies in crisis times. I use a novel micro-level dataset from Hungary to decompose the factors contributing to the worse loan performance of foreign currency borrowers compared to local currency debtors. I find that foreign currency denomination can worsen loan performance considerably, while selection also contributes significantly to the default differences. On the one hand, per se less creditworthy firms borrowed in foreign currency and during the crisis the foreign currency shocks further weakened their loan performances. On the other hand, more creditworthy firms that were also well-prepared for the currency risks also borrowed in foreign currency. My results suggest that not the institution of foreign currency lending per se that should be blamed for the bad loan performance of foreign currency borrowers, instead one should consider the characteristics of the borrowers.
Venue: Budapest, Fővám tér 8. 1093 The Financial Research Centre, Department of Finance, Corvinus Business School, Corvinus University of Budapest and the Game Theory Research Group, Centre for Economic and Regional Studies, ... Details »
Venue: Centre for Economic and Regional Studies, Institute of Economics, Hungarian Academy of Sciences (CERS IE-HAS), 1097 Budapest, Tóth Kálmán u. 4. Ground Floor room K 11-12. Thursday, 14 November, 2019 9:00 Imre Fertő (CERS IE/KU): Introduction Efficiency 9:10 J. Stephen Clark (Dalhousie University) and Lukas Cechura (Czech University of Life ... Details »
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“The multiplier effect of local food: the protocol of a systematic review” was presented by Imre FERTŐ at the EAAE (European Association of Agricultural ... Details »