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Exchange rate volatility and financial performance of agriculture firms in Malaysia: An empirical analysis using GARCH, wavelet and system- GMM

Author

Listed:
  • Md Reaz,
  • Fauziah Mahat,
  • Ahmed Mohamed Dahir,
  • Mohammad Sahabuddin,
  • Abu Saad Md Masnun A Mahi

Abstract

The insurgence of exchange rate volatility over the years has gained the attention of not only scholars but also policy makers around the world because exchange rate volatility increases the uncertainty over the time which makes it more difficult for international trade and investment decision, and financial performance as well. This paper investigates the effect of exchange rate volatility on the financial performance of agriculture firms in Malaysia by using the system-GMM dynamic panel techniques, the recent wavelet coherence technique and GARCH (1, 1) for the period of 2001 and 2015. The findings show that the volatility of exchange rate of Malaysian Ringgit (RM) has a negative impact on the financial performance of agriculture firms in Malaysia which is in line with our hypothesis. The ARME and AVA show a positive impact on the financial performance at level 1% significance for the full sample. The findings also reveal that financial performance, exchange rate (ER), consumer price index (CPI), and interest rate (IR) co-move by using the wavelet coherence. This study has implications that will lend policy makers from both firms and the government the comprehensive insights about the co-movement of exchange rate with some macro variables thus enabling them to predict substantially the trends.

Suggested Citation

  • Md Reaz, & Fauziah Mahat, & Ahmed Mohamed Dahir, & Mohammad Sahabuddin, & Abu Saad Md Masnun A Mahi, 2017. "Exchange rate volatility and financial performance of agriculture firms in Malaysia: An empirical analysis using GARCH, wavelet and system- GMM," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(3), pages 409-427, July.
    • Handle: RePEc:pdc:jrnbeh:v:13:y:2017:i:3:p:409-427
    DOI: 10.15208/beh.2017.29
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