Corporate foreign currency borrowing and investment: The case of Hungary

The paper investigates the impact of foreign currency lending on investment. Using Hungarian firm level data, we test whether foreign currency lending contributed to larger investment before the crisis and whether the depreciation during the Great Recession resulted in lower investment rate for firms with foreign currency loans. Results of OLS and matching estimations show that before the crisis FX lending increased investment rates and during the crisis the investment rate of firms with FX loans declined more because of the balance sheet effects triggered by the depreciation. These effects were found to be more pronounced for liquidity constrained firms.