Corporate dollar debt and balance sheet effects: identification using Trump tweets

This paper revisits foreign exchange spillover effects via the balance sheet channel, exploiting exogenous shocks triggered by the US president Trump’s 2018 tweets of threatening imminent sanctions on Turkish exports. These tweets were politically driven and produced a large and unanticipated exchange rate shock within the Turkish economy, consequently providing a quasi-natural experiment to investigate the balance sheet channel of dollar-denominated corporate debt. Using quarterly data for 2013–2023 for firms listed on Borsa Istanbul, our difference-in-difference estimations around the window of Trump tweets show that firms with high net FX debt experienced a major decline in investment rates following the depreciation, whereas the control group remained largely unaffected. The identified impact is approximately twice the size of estimates obtained through standard panel data methods. Overall, this study contributes to the literature by providing a clear and rigorous identification strategy for FX spillover effects through the balance sheet channel.