The Global Impact of Foreign Currency Borrowing on Corporate Valuation: Evidence From Emerging Markets
Keywords:
Foreign Currency Borrowing, Corporate Valuation, Exchange Rate Volatility, Emerging Markets, Financial Risk ManagementAbstract
This paper analyses the effects of foreign currency borrowing on corporate valuation in the emerging markets based on the panel data and econometric models. The value is determined through the Tobin Q and market capitalization, in which foreign currency debt was the most important independent variable. They can be controlled variables, which are exchange rate volatility, interest rate differentials, firm size, profitability, leverage, and GDP growth, as well as inflation. Findings indicate that although foreign debt has the potential to improve valuation by providing accessible and inexpensive financing as well as access to international markets, currency mismatches and currency volatility risks might negatively affect firm value. One of the most effective ways to maximize the benefits and reduce foreign currency borrowing risks is to have good hedging, profitability, and regulatory support.
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