IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Exchange rate exposure

  • Dominguez, Kathryn M.E.
  • Tesar, Linda L.

In this paper we examine the relationship between exchange rate movements and firm value. We estimate the exchange rate exposure of publicly listed firms in a sample of eight (non-US) industrialized and emerging markets, and find that a significant percentage of these firms are indeed exposed. These results differ substantially from most previous studies in the literature that find little evidence of exposure. In robustness checks we find that: (i) the choice of exchange rate matters, and using the trade-weighted exchange rate is likely to understate the extent of exposure, (ii) conditioning on the value-weighted vs. the equally-weighted market index has little effect on estimated exposure, while conditioning on the international index does change the estimate of exposure, (iii) the extent of exposure is not a result of a spurious correlation between random variables with high variances, (iv) exposure increases with the return horizon, (v) within a country and within an industry, exposure coefficients are roughly evenly split between positive and negative values, (vi) averaging across the (absolute value of the) significant exposure coefficients in our sample of countries, we find an exposure coefficient of about 0.5, (vii) the extent of exposure is not sensitive to the sample period, but the set of firms that is exposed does vary over time, and (viii) the sign of the exposure coefficients changes across subperiods for about half of the firms of our sample. We find that exposure is not systematically related to firm size, industry affiliation, multinational status, foreign sales, international assets or industry-level trade.

(This abstract was borrowed from another version of this item.)

If 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.

File URL: http://www.sciencedirect.com/science/article/B6V6D-4GG8TDY-1/2/ac434a9b4245512b148ecaa6d0e40a57
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 68 (2006)
Issue (Month): 1 (January)
Pages: 188-218

as
in new window

Handle: RePEc:eee:inecon:v:68:y:2006:i:1:p:188-218
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

References listed on IDEAS
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.:

as in new window
  1. Bodnar, Gordan M. & Marston, Richard C., 2000. "A Simple Model of Foreign Exchange Exposure," Working Papers 00-3, University of Pennsylvania, Wharton School, Weiss Center.
  2. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series rwp01-013, Harvard University, John F. Kennedy School of Government.
  3. Kathryn M.E Dominguez & Linda L. Tesar, 2001. "A Re-Examination of Exchange Rate Exposure," Working Papers 465, Research Seminar in International Economics, University of Michigan.
  4. Williamson, Rohan, 2001. "Exchange rate exposure and competition: evidence from the automotive industry," Journal of Financial Economics, Elsevier, vol. 59(3), pages 441-475, March.
  5. George Allayannis & Jane Ihrig, 2000. "The effect of markups on the exchange rate exposure of stock returns," International Finance Discussion Papers 661, Board of Governors of the Federal Reserve System (U.S.).
  6. 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.
  7. Jose Campa & Linda S. Goldberg, 1996. "Investment, pass-through, and exchange rates: a cross-country comparison," Staff Reports 14, Federal Reserve Bank of New York.
  8. Joaquim Oliveira Martins & Stefano Scarpetta & Dirk Pilat, 1996. "Mark-Up Ratios in Manufacturing Industries: Estimates for 14 OECD Countries," OECD Economics Department Working Papers 162, OECD Publishing.
  9. Roeger, Werner, 1995. "Can Imperfect Competition Explain the Difference between Primal and Dual Productivity Measures? Estimates for U.S. Manufacturing," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 316-30, April.
  10. Dominguez, K., 1997. "The Dollar Exposure of Japanese Companies," Working Papers 414, Research Seminar in International Economics, University of Michigan.
  11. Griffin, John M & Stulz, Rene M, 2001. "International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 215-41.
  12. Chow, Edward H & Lee, Wayne Y & Solt, Michael E, 1997. "The Exchange-Rate Risk Exposure of Asset Returns," The Journal of Business, University of Chicago Press, vol. 70(1), pages 105-23, January.
  13. Chamberlain, Sandra & Howe, John S. & Popper, Helen, 1997. "The exchange rate exposure of U.S. and Japanese banking institutions," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 871-892, June.
  14. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
  15. Nucci, Francesco & Pozzolo, Alberto F., 2001. "Investment and the exchange rate: An analysis with firm-level panel data," European Economic Review, Elsevier, vol. 45(2), pages 259-283, February.
  16. Eli Bartov & Gordon M. Bodnar & Aditya Kaul, 1995. "Exchange Rate Variability and the Riskiness of U.S. Multinational Firms:Evidence from the Breakdown of the Bretton Woods System," NBER Working Papers 5323, National Bureau of Economic Research, Inc.
  17. Bodnar, G.M. & Dumas, B. & Marston, R.C., 1998. "Pass-Through and Exposure," Weiss Center Working Papers 98-01, Wharton School - Weiss Center for International Financial Research.
  18. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-45, July.
  19. Gordon M. Bodnar & M.H. Franco Wong, 2003. "Estimating Exchange Rate Exposures: Issues in Model Structure," Financial Management, Financial Management Association, vol. 32(1), Spring.
  20. Kristin J. Forbes, 2002. "Are Trade Linkages Important Determinants of Country Vulnerability to Crises?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 77-132 National Bureau of Economic Research, Inc.
  21. Bartov, Eli & Bodnar, Gordon M, 1994. " Firm Valuation, Earnings Expectations, and the Exchange-Rate Exposure Effect," Journal of Finance, American Finance Association, vol. 49(5), pages 1755-85, December.
  22. Gordon M. Bodnar & M.H. Franco Wong, 2000. "Estimating Exchange Rate Exposures: Some "Weighty" Issues," NBER Working Papers 7497, National Bureau of Economic Research, Inc.
  23. Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
  24. Gordon M. Bodnar & Joseph Weintrop, 1997. "The Valuation of the Foreign Income of U.S. Multinational Firms: A Growth Opportunities Perspective," NBER Working Papers 5904, National Bureau of Economic Research, Inc.
  25. Goldberg, L.S. & Campa, J., 1993. "Investment in Manufacturing, Exchange-Rate and External Exposure," Working Papers 93-18, C.V. Starr Center for Applied Economics, New York University.
  26. Jia He & Lilian K. Ng, 1998. "The Foreign Exchange Exposure of Japanese Multinational Corporations," Journal of Finance, American Finance Association, vol. 53(2), pages 733-753, 04.
  27. Kathryn M.E Dominguez & Linda L. Tesar, 2000. "Trade and Exposure," Working Papers 466, Research Seminar in International Economics, University of Michigan.
  28. Edward H. Chow & Wayne Y. Lee & Michael E. Solt, 1997. "The Economic Exposure Of U.S. Multinational Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 191-210, 06.
  29. Hodder, James E., 1982. "Exposure to exchange-rate movements," Journal of International Economics, Elsevier, vol. 13(3-4), pages 375-386, November.
  30. Allayannis, George & Ihrig, Jane, 2001. "Exposure and Markups," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 805-35.
  31. Nance, Deana R & Smith, Clifford W, Jr & Smithson, Charles W, 1993. " On the Determinants of Corporate Hedging," Journal of Finance, American Finance Association, vol. 48(1), pages 267-84, March.
  32. Marston, Richard C., 2001. "The effects of industry structure on economic exposure," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 149-164, April.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:inecon:v:68:y:2006:i:1:p:188-218. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.