Currency mismatches in emerging markets: Effects on corporate liquidity, investment dynamics and performance

Abstract

We examine how USD-denominated bond issuance by non-financial listed firms in emerging market economies affects cash holdings and real activity under currency depreciations and shifting external borrowing conditions. Using firm-year data for 1655 listed firms in fifteen EMEs (2001–2016) and an issuance-based measure of offshore access, we find that issuing abroad raises cash holdings and increases investment with a lag, consistent with a save-to-invest motive. These effects are stronger when country-level risk-adjusted domestic–U.S. borrowing spreads are high. Depreciations dampen the contemporaneous cash buildup but do not systematically reduce investment or competitiveness. Instead, firms expand working capital and, when depreciations coincide with high spreads, increase sales and capacity utilization, indicating adjustment through liquidity and operational margins rather than sharp balance-sheet distress.