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Foreign Exchange Exposure and Stock Returns: Evidence from Multinational Corporations in Taiwan

Author

Listed:
  • Zixiong Xie

    (Department of International Economics and Trade, Research Institute of Natural Resources, Environment & Sustainable Development, College of Economics, Jinan University, Guangzhou, China)

  • Shyh-Wei Chen

    (Department of International Business, Center for Applied Economic Modeling, Chung Yuan Christian University, Taiwan)

  • Jie-Hong Fang

    (Department of International Business, Chung Yuan Christian University, Taiwan)

Abstract

Using data for 541 Taiwanese listed companies over the 1994-2009 period, this paper examines the effect of unexpected exchange rate exposure on the value of the enterprise and the determinants of exchange rate exposure in Taiwan. The empirical evidence shows that about 25% of listed companies suffer exchange rate exposure risk and this condition becomes more severe when the economy contracts. We also investigate the determinants of exchange rate exposure. Two categorical variables are included: the first describes the firm's business operations and the second the firm's financial characteristics. The empirical evidence shows that the size of the company and book-to-market value has negative effects on the exchange rate exposure. Besides, we find that the quick ratio and age of firms have nonlinear U-shaped effects on exchange rate exposure.

Suggested Citation

  • Zixiong Xie & Shyh-Wei Chen & Jie-Hong Fang, 2014. "Foreign Exchange Exposure and Stock Returns: Evidence from Multinational Corporations in Taiwan," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 10(1), pages 49-68, January.
    • Handle: RePEc:jec:journl:v:10:y:2014:i:1:p:49-68
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    More about this item

    Keywords

    exchange rate exposure; the determinants of exchange rate exposure; panel data;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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