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Exchange rate movements and firm value

Author

Listed:
  • Nurul Mozumder
  • Glauco De Vita
  • Charles Larkin
  • Khine S. Kyaw

Abstract

Purpose - – The purpose of this paper is to investigate the sensitivity of firm value to exchange rate (ER) movements, and the determinants of such exposure for 100 European blue chip companies over 2001-2012. Design/methodology/approach - – The authors adopt a disaggregated framework that distinguishes between Eurozone and non-Eurozone firms, and between financial and non-financial firms across the pre-crisis, crisis and post-crisis periods of the recent financial crisis. Findings - – The authors find no significant difference between Eurozone and non-Eurozone, and financial and non-financial firms. Exposure is found to be higher during the financial crisis, across all sub-samples of firms. In the majority of cases the exposure coefficient is significantly positive, indicating that European firms’ stock returns are positively (negatively) affected by depreciation (appreciation) of ERs (indirect quotation). Practical implications - – It is recommended that firms’ financial plans budget for higher liquidity levels in order to build up, during “good times”, a natural hedge for the higher exposure likely to be faced during periods characterized by greater financial distress. Originality/value - – The main novelty lies in the adoption of a disaggregated framework that discriminates between pre-crisis, crisis and post-crisis periods in order to ascertain the extent to which the recent financial crisis affected the relationship in question.

Suggested Citation

  • Nurul Mozumder & Glauco De Vita & Charles Larkin & Khine S. Kyaw, 2015. "Exchange rate movements and firm value," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(4), pages 561-577, September.
    • Handle: RePEc:eme:jespps:v:42:y:2015:i:4:p:561-577
    DOI: 10.1108/JES-02-2014-0029
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    Citations

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    Cited by:

    1. Ekta Sikarwar & Roopak Gupta, 2019. "Economic exposure to exchange rate risk and financial hedging," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 46(4), pages 965-984, August.
    2. N Mozumder & G De Vita & K.S. Kyaw & C Larkin, 2015. "Volatility Spillover Between Stock Prices and Exchange Rates: New Evidence Across the Recent Financial Crisis Period," Economic Issues Journal Articles, Economic Issues, vol. 20(1), pages 43-64, March.
    3. Zakiya Begum Sayed & J. Gayathri, 2023. "Factors Determining the Exchange Rate Exposure of Firms: Evidence from India," Business Perspectives and Research, , vol. 11(2), pages 210-226, May.

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