A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms
AbstractWe examine the relationship between exchange-rate changes and stockreturns for a sample of Dutch firms over 1994-1998. We find that over50% of the firms are significantly exposed to exchange-rate risk.Furthermore, all firms with significant exchange-rate exposure benefitfrom a depreciation of the Dutch guilder relative to a trade-weightedcurrency index. This result confirms that firms in open economies,such as the Netherlands, exhibit significant exchange-rate exposure.We collect unique information on the most relevant individualcurrencies for each firm with respect to their influence on firmvalue. Our results indicate that the use of a trade-weighted currencyindex and the use of individual exchange rates are complements. Wealso measure the determinants of exchange-rate exposure. As expected,we find that firm size and the foreign sales ratio are significantlyand positively related to exchange-rate exposure. In contrast with ourhypothesis, off-balance hedging using derivatives has no significanteffects. Finally, in line with theory, we find that exposure issignificantly reduced through on-balance sheet hedging, i.e. throughforeign loans and by producing in factories abroad.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam. in its series Research Paper with number ERS-2002-109-F&A.
Date of creation: 09 Dec 2002
Date of revision:
Contact details of provider:
Web page: http://www.erim.eur.nl/
risk management; The Netherlands; foreign exchange rates; international finance; exposure measurement;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-17 (All new papers)
- NEP-FIN-2002-12-17 (Finance)
- NEP-IFN-2002-12-17 (International Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kathryn M.E. Dominguez & Linda L. Tesar, 2001.
"Exchange Rate Exposure,"
NBER Working Papers
8453, National Bureau of Economic Research, Inc.
- Bodnar, Gordon M. & Gentry, William M., 1993. "Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA," Journal of International Money and Finance, Elsevier, vol. 12(1), pages 29-45, February.
- Martin Glaum & Marko Brunner & Holger Himmel, 2000. "The DAX and the Dollar: The Economic Exchange Rate Exposure of German Corporations," Journal of International Business Studies, Palgrave Macmillan, vol. 31(4), pages 715-724, December.
- Muller, Aline & Verschoor, Willem F.C., 2006. "Foreign exchange risk exposure: Survey and suggestions," Journal of Multinational Financial Management, Elsevier, vol. 16(4), pages 385-410, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ERIM Series Handler at the ERIM Office).
If references are entirely missing, you can add them using this form.