Operational Currency Mismatch and Firm Level Performance: Evidence from India
AbstractThis paper looks at the determinants and effects of exchange rate exposure using data on 500 Indian firms over the period 1995-2011. Unlike the existing papers in the literature, we use a measure of `operational` currency exposure based on foreign currency revenues and costs of firms. Among other factors, exchange rate volatility appears as a significant determinant of average firm level exposure with the direction of relationship supporting the presence of `Moral Hazard` in firm’s risk taking behavior. Further large `operational` exposure is associated with significantly lower output growth, profitability and capital expenditure during episodes of large currency depreciation at the firm level. Together this indicates that the policy makers must take into account the incentive effects of their intervention in foreign exchange markets.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 47935.
Date of creation: 01 Jun 2013
Date of revision:
Operational Currency Exposure; Moral Hazard; Exchange Rate Volatility;
Find related papers by JEL classification:
- F00 - International Economics - - General - - - General
- F31 - International Economics - - International Finance - - - Foreign Exchange
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
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