TY - JOUR
T1 - Beyond Carry-Trading: New Insights into the Uses of Foreign-Denominated Bond Issuances by Latin American Firms
AU - Pérez Artica, Rodrigo
AU - Rabinovich, Joel
AU - Zeolla, Nicolas
PY - 2025/4/7
Y1 - 2025/4/7
N2 - Corporate bond issuances originating from developing and emerging market economies have emerged as the primary catalyst for the expansion of global debt following the Global Financial Crisis. Although Asia has dominated this trend, Latin American firms have significantly contributed, emerging as the second-largest issuers of corporate debt. Against this background, this article delves into the underlying motivations driving firms' engagement in such borrowing activities. Traditionally, the prevailing narrative has underscored carry-trading as the predominant purpose for utilizing proceeds from foreign-denominated bonds. However, we challenge this hypothesis by adopting an innovative methodological approach. Rather than relying on ex-ante incentives based on global interest rate differentials, as commonly employed in the literature, we utilize firm-level data on the ex-post interest income earned by firms. Through this alternative methodology, we do not find evidence supporting the presence of carry-trading practices. Overall, our analysis supports precautionary motives. We find a stronger correlation between bond issuances and both cash holdings and capital expenditures.
AB - Corporate bond issuances originating from developing and emerging market economies have emerged as the primary catalyst for the expansion of global debt following the Global Financial Crisis. Although Asia has dominated this trend, Latin American firms have significantly contributed, emerging as the second-largest issuers of corporate debt. Against this background, this article delves into the underlying motivations driving firms' engagement in such borrowing activities. Traditionally, the prevailing narrative has underscored carry-trading as the predominant purpose for utilizing proceeds from foreign-denominated bonds. However, we challenge this hypothesis by adopting an innovative methodological approach. Rather than relying on ex-ante incentives based on global interest rate differentials, as commonly employed in the literature, we utilize firm-level data on the ex-post interest income earned by firms. Through this alternative methodology, we do not find evidence supporting the presence of carry-trading practices. Overall, our analysis supports precautionary motives. We find a stronger correlation between bond issuances and both cash holdings and capital expenditures.
M3 - Article
JO - Latin American Journal of Central Banking
JF - Latin American Journal of Central Banking
ER -