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Corporate debt in emerging markets has risen significantly in recent years amid accommodative global financial conditions. This paper studies the relationship of leverage growth in emerging market (EM) firms to U.S. monetary conditions, and more broadly, to global financial conditions. We find that accommodative U.S. monetary conditions are reliably associated with faster EM leverage growth during the past decade. Specifically, a 1 percentage point decline in the U.S. policy rate corresponds to an appreciable increase in EM leverage growth of 9 basis points, on average (relative to the sample average leverage growth of 35 basis points per year). This impact is more pronounced for sectors dependent on external financing, for SMEs, and for firms in more financially open EMs with less flexible exchange rates. The findings suggest that global financial conditions affect EM firms’ leverage growth in part by influencing domestic interest rates and by relaxing corporate borrowing constraints.

Corporate debt. --- Corporations --- Debt --- Debt financing (Corporations) --- Finance --- Corporate debt --- Monetary policy --- Business corporations --- C corporations --- Corporations, Business --- Corporations, Public --- Limited companies --- Publicly held corporations --- Publicly traded corporations --- Public limited companies --- Stock corporations --- Subchapter C corporations --- Business enterprises --- Corporate power --- Disincorporation --- Stocks --- Trusts, Industrial --- E-books --- Corporate Finance --- Exports and Imports --- Finance: General --- Foreign Exchange --- Banks and Banking --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Financial Markets and the Macroeconomy --- Corporate Finance and Governance: General --- Interest Rates: Determination, Term Structure, and Effects --- Currency --- Foreign exchange --- International economics --- Ownership & organization of enterprises --- Banking --- Exchange rate arrangements --- Exchange rate flexibility --- Capital account --- Financial sector development --- Small and medium enterprises --- Balance of payments --- Financial markets --- Central bank policy rate --- Financial services --- Financial services industry --- Small business --- Interest rates --- United States