IDEAS home Printed from https://ideas.repec.org/a/ers/ijebaa/vxiiy2024i1p99-117.html
   My bibliography  Save this article

The Effect of Availability of Foreign Exchange and Devaluation of BIRR on the Performance of Companies in Ethiopia (Instance of Sample Company)

Author

Listed:
  • Kirsneh Alemu Kebede

Abstract

Purpose: When a country devalues its currency, some firms benefit from any resulting changes in relative prices, while other firms are relatively unaffected or suffer a loss in competitiveness. By taking a sample of import and export firms, this study assessed the effect availability of foreign currency and devaluation of BIRR (the Ethiopian national currency) on performance of firms in Ethiopia in general. Design/Methodology/Approach: The study used both primary (collected through questionnaire) and secondary data collected from financial statements of the companies. The study applies both the descriptive and inferential analysis. Findings: After detail analysis, the increase in private driven business, informal channels of inflow of foreign currency, increased population and corruption will worsen appropriate use of FOREX and aggravate challenges of shortage of it. And also it is found that the foreign currency shortage has affected the firms in many ways such as profit loss, lay off employees and discourages new investment. Practical Implications: Devaluation of BIRR against the foreign currencies makes Ethiopian commodities to be competitive in international markets. And it can also attract new investments and increase exports. Originality/Value: The study intended to assess the main challenges to access foreign currencies, assess the effects of foreign currency shortage on import/export firms, assess the effects of devaluation of BIRR on import/export firms and assess company-specific factors.

Suggested Citation

  • Kirsneh Alemu Kebede, 2024. "The Effect of Availability of Foreign Exchange and Devaluation of BIRR on the Performance of Companies in Ethiopia (Instance of Sample Company)," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 99-117.
    • Handle: RePEc:ers:ijebaa:v:xii:y:2024:i:1:p:99-117
    as

    Download full text from publisher

    File URL: https://ijeba.com/journal/835/download
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hsiao, Chiu-Ming & Zhang, Wei-Fang & Chiu, Chi-Chang & Huang, Jung-Chang & Huang, Yu-Ling, 2017. "The Enterprise Risk Management of Foreign Exchange Exposures: Evidence from Taiwanese Hospitality Industry," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 4(1), pages 32-48.
    2. M Bahmani-Oskooee & I Miteza, 2003. "Are Devaluations Expansionary or Contractionary? A survey article," Economic Issues Journal Articles, Economic Issues, vol. 8(2), pages 1-28, September.
    3. Thandinkosi Ndhlela, 2012. "Implications Of Real Exchange Rate Misalignment In Developing Countries: Theory, Empirical Evidence And Application To Growth Performance In Zimbabwe," South African Journal of Economics, Economic Society of South Africa, vol. 80(3), pages 319-344, September.
    4. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
    5. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
    6. Pierre-Richard Agénor & Robert P. Flood, 1992. "Unification of Foreign Exchange Markets," IMF Staff Papers, Palgrave Macmillan, vol. 39(4), pages 923-947, December.
    7. Irena Jindrichovska & Erginbay Ugurlu & Eleftherios I. Thalassinos, 2020. "Exploring the Trend of Czech FDIs and their Effect to Institutional Environment," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 94-108.
    8. Hsiao, Chiu-Ming, 2017. "Enterprise Risk Management with Foreign Exchange Exposures : Evidence from Taiwan Tourism Industry," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(9), pages 882-906, September.
    9. Tybout, James, et al, 1997. "Firm-Level Responses to the CFA Devaluation in Cameroon," Journal of African Economies, Centre for the Study of African Economies, vol. 6(1), pages 3-34, March.
    10. Aguiar, Mark, 2005. "Investment, devaluation, and foreign currency exposure: The case of Mexico," Journal of Development Economics, Elsevier, vol. 78(1), pages 95-113, October.
    11. Joseph E. Stiglitz, 2002. "Capital Market Liberalization and Exchange Rate Regimes: Risk without Reward," The ANNALS of the American Academy of Political and Social Science, , vol. 579(1), pages 219-248, January.
    12. Eleftherios I. Thalassinos & Erginbay Ugurlu & Yusuf Muratoglu, 2015. "Comparison of Forecasting Volatility in the Czech Republic Stock Market," Applied Economics and Finance, Redfame publishing, vol. 2(1), pages 11-18, February.
    13. Carlos Goncalves & Mauro Rodrigues, 2017. "Exchange Rate Misalignment and Growth: A Myth?," IMF Working Papers 2017/283, International Monetary Fund.
    14. Hsiao, Chiu-Ming & Zhang, Wei-Fang & Chiu, Chi-Chang & Huang, Jung-Chang & Huang, Yu-Ling, 2017. "The Enterprise Risk Management of Foreign Exchange Exposures: Evidence from Taiwanese Hospitality Industry," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 4(1), pages 32-48.
    15. Derrese Degefa, 2001. "The parallel foreign exchange market and macroeconomic performance in Ethiopia," Working Papers 107, African Economic Research Consortium, Research Department.
    16. Eleftherios I. Thalassinos & Bozhana Venediktova & Daniela Staneva-Petkova & Vicky Zampeta, 2013. "Way of Banking Development Abroad: Branches or Subsidiaries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(3), pages 69-78.
    17. Phuong Lien Thi Hoang & Dong Xuan Pham & Eleftherios I. Thalassinos & Hoang Anh Le, 2022. "The Impact of Corporate Governance Mechanism, Company Characteristics on the Timeliness of Financial Statements: Evidence from Listed Companies in Vietnam," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 11, March.
    18. Lynda Sanderson, 2009. "Exchange rates and export performance: evidence from micro-data," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 43-52, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Eunhye (Olivia) Park & Woo-Hyuk Kim, 2021. "The effect of inventory turnover on financial performance in the US restaurant industry: The moderating role of exposure to commodity price risk," Tourism Economics, , vol. 27(7), pages 1417-1429, November.
    2. Chung-Fu Lai, 2018. "Fiscal Policy and Macroeconomic Fluctuations in a Fixed Exchange Rate Regime," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 8(10), pages 1257-1273, October.
    3. Amrizah Kamaluddin & Norhafizah Ishak & Nor Farizal Mohammed, 2019. "Financial Distress Prediction Through Cash Flow Ratios Analysis," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(3), pages 63-76, May.
    4. Sebnem Kalemli-Ozcan & Herman Kamil & Carolina Villegas-Sanchez, 2016. "What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?," The Review of Economics and Statistics, MIT Press, vol. 98(4), pages 756-769, October.
    5. Debabrata Datta & Susmita Chatterjee, 2013. "A Simple Model of Macroeconomic Instability in the Background of the Indian Economy," South Asian Journal of Macroeconomics and Public Finance, , vol. 2(1), pages 81-106, June.
    6. M Bahmani-Oskooee & I Miteza, 2006. "Stock Market Growth: An analysis of cointegration and causality," Economic Issues Journal Articles, Economic Issues, vol. 11(1), pages 37-64, March.
    7. Ricardo Bebczuk & Arturo Galindo & Ugo Panizza, 2010. "An Evaluation of the Contractionary Devaluation Hypothesis," Palgrave Macmillan Books, in: Hadi Salehi Esfahani & Giovanni Facchini & Geoffrey J. D. Hewings (ed.), Economic Development in Latin America, chapter 8, pages 102-117, Palgrave Macmillan.
    8. Valentina Bruno & Hyun Song Shin, 2020. "Currency Depreciation and Emerging Market Corporate Distress," Management Science, INFORMS, vol. 66(5), pages 1935-1961, May.
    9. Kim, Yun Jung & Tesar, Linda L. & Zhang, Jing, 2015. "The impact of foreign liabilities on small firms: Firm-level evidence from the Korean crisis," Journal of International Economics, Elsevier, vol. 97(2), pages 209-230.
    10. Mohsen Bahmani-Oskooee & Ali Kutan, 2008. "Are devaluations contractionary in emerging economies of Eastern Europe?," Economic Change and Restructuring, Springer, vol. 41(1), pages 61-74, March.
    11. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2011. "The relationship between investment and large exchange rate depreciations in dollarized economies," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1265-1279.
    12. Jin, Jing & Liao, Rose C. & Loureiro, Gilberto, 2021. "The diverse effects of currency crises on multinational and local firms: The use of foreign currency debt," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    13. Matthias EFING & Rüdiger FAHLENBRACH & Christoph HERPFER & Philipp KRÜGER, 2015. "How Do Investors and Firms React to an Unexpected Currency Appreciation Shock?," Swiss Finance Institute Research Paper Series 15-65, Swiss Finance Institute, revised Jan 2016.
    14. Carranza, Luis & Galdon-Sanchez, Jose E. & Gomez-Biscarri, Javier, 2009. "Exchange rate and inflation dynamics in dollarized economies," Journal of Development Economics, Elsevier, vol. 89(1), pages 98-108, May.
    15. Lorenzo Nalin & Giuliano Toshiro Yajima, 2020. "Balance Sheet Effects of a Currency Devaluation: A Stock-Flow Consistent Framework for Mexico?," Economics Working Paper Archive wp_980, Levy Economics Institute.
    16. Abdallah, Ali, 2022. "Dépréciation réelle de la monnaie et croissance économique [Can real currency depreciation lead growth?]," MPRA Paper 113183, University Library of Munich, Germany.
    17. Timothy Chue & David Cook, 2004. "Sudden Stops and Liability Dollarization: Evidence from East Asian Financial Intermediaries," Econometric Society 2004 Far Eastern Meetings 646, Econometric Society.
    18. Fouopi Djiogap Constant, 2012. "The CFA Franc Devaluation and Output Growth in the Franc Zone," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(1), pages 40-48, January.
    19. José Antonio Morales Castro & Francisco López-Herrera, 2021. "Ganancias cambiarias en empresas mexicanas y variables fundamentales y económicas," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(2), pages 1-21, Abril - J.
    20. Mohsen Bahmani-Oskooee & Magda Kandil, 2010. "Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(3), pages 23-45, May.

    More about this item

    Keywords

    Devaluation of BIRR; foreign exchange (FOREX); Ethiopia; Import and Export.;
    All these keywords.

    JEL classification:

    • G0 - Financial Economics - - General
    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ers:ijebaa:v:xii:y:2024:i:1:p:99-117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Marios Agiomavritis (email available below). General contact details of provider: https://ijeba.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.