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Balance Sheet Exchange Rate Exposure, Investment and Firm Value : Evidence from Turkish Firms


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  • Halit Gonenc
  • Goknur Z. Buyukkara
  • Onur Koyuncu
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    This paper provides evidence for the effects of a combination of balance sheet exchange rate exposure and real exchange rate movements on investment. In highly inflationary developing economies like Turkey, firms use the foreign curency denominated assets and debts to defend themselves against inflationary effects and try to benefit from open positions when the currency is undervalued or overvalued. With measuring balance sheet foreign currency exposures for Turkish Industrial firms in the period of 2000-2003, we show that the degree of exchange rate exposure is correlated with financial positions of the firms, but not with the size and affiliation with either holdings or banks. Based on the evidence that firms value and investment are endogenous, we find that the firms with negative (positive) balance sheet exchange rate exposure decrease their investment by the depreciation (appreciation) of the value of TL. In addition, we show that there is a positive association of expansion in investment with the firm value.

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    Bibliographic Info

    Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

    Volume (Year): 3 (2003)
    Issue (Month): 2 ()
    Pages: 1-25

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    Handle: RePEc:tcb:cebare:v:3:y:2003:i:2:p:1-25

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    Keywords: Balance Sheet Exposure; Foreign Exchange Risk; Investment; Firm Value; Emerging Markets;

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