Identifying the Impact of Exchange Rate Volatility on Corporate Credit Risk: Firm-level Evidence from China

This study aims to provide direct evidence of exchange rate volatility's impact on corporate credit risk by using data from Chinese listed companies. I adopt an identification strategy based on regional heterogeneity across the country and obtain robust results, showing that higher exchange rate volatility increases corporate credit risk, mainly by worsening firms' profitability and financial flexibility. Additionally, I find that the impact of exchange rate volatility on corporate credit risk through the above channels is primarily concentrated in large enterprises, state-owned enterprises (SOEs), and capital-intensive enterprises.

Automated summary

This study provides direct evidence of the impact of exchange rate volatility on corporate credit risk using data from Chinese listed companies. The results show that higher exchange rate volatility increases corporate credit risk, primarily by worsening firms' profitability and financial flexibility. Additionally, the impact of exchange rate volatility on corporate credit risk is mainly concentrated in large enterprises, state-owned enterprises (SOEs), and capital-intensive enterprises.