Foreign Currency Borrowing, Exports and Firm Performance: Evidence from a Currency Crisis

Foreign Currency Borrowing, Exports and Firm Performance: Evidence from a Currency Crisis

18/01

January 2018

This paper develops a simple signalling model of foreign currency borrowing that yields predictions about firm survival and performance during a currency crisis. Using a large panel of firm level data for South Korea we offer empirical support for the predictions of our model. It demonstrates that although firms that borrow in foreign currency are more likely to exit after the currency collapses, those that survive perform better. Among them, the best performers are exporters whose foreign sales are now more competitive.