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Exchange Rate Change, Factor Market Distortion and Company Performance

Author

Listed:
  • Wang Yaqi

    (PhD in Economics and Associate Professor of the School of Finance, Central University of Finance and Economics, Beijing, China)

  • Lu Bing

    (PhD in Economics and Lecturer of the School of Statistics, Beijing Normal University, Beijing, China)

  • Hong Shengjie

    (PhD in Economics and Associate Professor of the School of Economics, Central University of Finance and Economics, Beijing, China)

Abstract

Based on the matched data of China’s tax survey and customs from 2007 to 2011, this paper studies the differential impact of exchange rate changes on the performance of companies by region from the perspective of factor market distortion. The results show that for import companies, the RMB appreciation significantly contributes to improving their performance and this phenomenon is more pronounced in areas with high factor market distortions. Channel tests show that the proportion of intermediate goods imported by final producers increases with regional factor market distortions. Therefore, the appreciation of the national currency is more favorable for areas with high factor market distortions (companies with high proportion of imported intermediate goods). In addition, the appreciation of the national currency will promote the production of China’s upstream intermediate goods producers by expanding the output of downstream enterprises. This paper complements previous studies on the differential impact of RMB exchange rate changes on regional economic growth from a micro perspective.

Suggested Citation

  • Wang Yaqi & Lu Bing & Hong Shengjie, 2022. "Exchange Rate Change, Factor Market Distortion and Company Performance," China Finance and Economic Review, De Gruyter, vol. 11(3), pages 90-109, November.
    • Handle: RePEc:bpj:cferev:v:11:y:2022:i:3:p:90-109:n:5
    DOI: 10.1515/cfer-2022-0018
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