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Exchange rate risk exposure and the value of European firms

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  • Fabio Parlapiano
  • Vitali Alexeev
  • Mardi Dungey

Abstract

This paper presents a new assessment of the exposure of European firms to exchange rate fluctuations which takes into account the potential common drivers of exchange rates and equity market conditions. Using monthly data for European firms from 1999 to 2011, we assess the impact of unexpected fluctuations in the USD, JPY, GBP and CHF against the Euro, and show that the proportion of firms subject to exchange rate risk is considerably larger when estimation accounts for potential common drivers and firm-specific factors than otherwise. Firm exposure to exchange rate risk is affected by the level of international involvement, industry, firm size and country of origin. European firms with largely domestic operations reveal the greatest vulnerability to unexpected exchange rate movements, suggesting an opportunity to improve risk management for these companies.

Suggested Citation

  • Fabio Parlapiano & Vitali Alexeev & Mardi Dungey, 2017. "Exchange rate risk exposure and the value of European firms," The European Journal of Finance, Taylor & Francis Journals, vol. 23(2), pages 111-129, January.
    • Handle: RePEc:taf:eurjfi:v:23:y:2017:i:2:p:111-129
    DOI: 10.1080/1351847X.2015.1072570
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    8. İbrahim Ethem Güney & Abdullah Kazdal & Doruk Küçüksaraç & Muhammed Hasan Yılmaz, 2021. "Exchange Rate Sensitivity of Firm Value: Evidence from Nonfinancial Firms Listed on Borsa Istanbul," Springer Books, in: Burcu Adıgüzel Mercangöz (ed.), Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics, edition 1, pages 141-165, Springer.
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    13. 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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    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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