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Balance Sheet Exchange Rate Exposure, Investment and Firm Value : Evidence from Turkish Firms


  • Halit Gonenc
  • Goknur Z. Buyukkara
  • Onur Koyuncu


This paper provides evidence for the effects of a combination of balance sheet exchange rate exposure and real exchange rate movements on investment. In highly inflationary developing economies like Turkey, firms use the foreign curency denominated assets and debts to defend themselves against inflationary effects and try to benefit from open positions when the currency is undervalued or overvalued. With measuring balance sheet foreign currency exposures for Turkish Industrial firms in the period of 2000-2003, we show that the degree of exchange rate exposure is correlated with financial positions of the firms, but not with the size and affiliation with either holdings or banks. Based on the evidence that firms value and investment are endogenous, we find that the firms with negative (positive) balance sheet exchange rate exposure decrease their investment by the depreciation (appreciation) of the value of TL. In addition, we show that there is a positive association of expansion in investment with the firm value.

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  • Halit Gonenc & Goknur Z. Buyukkara & Onur Koyuncu, 2003. "Balance Sheet Exchange Rate Exposure, Investment and Firm Value : Evidence from Turkish Firms," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(2), pages 1-25.
  • Handle: RePEc:tcb:cebare:v:3:y:2003:i:2:p:1-25

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    References listed on IDEAS

    1. Mervyn A. King, 1999. "Challenges for monetary policy : new and old," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 11-57.
    2. Rich, Georg, 2000. "Monetary Policy without Central Bank Money: A Swiss Perspective," International Finance, Wiley Blackwell, vol. 3(3), pages 439-469, November.
    3. Woodford, Michael, 2000. "Monetary Policy in a World without Money," International Finance, Wiley Blackwell, vol. 3(2), pages 229-260, July.
    4. Barbara A. Good, 1998. "Private money: everything old is new again," Economic Commentary, Federal Reserve Bank of Cleveland, issue Apr.
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    More about this item


    Balance Sheet Exposure; Foreign Exchange Risk; Investment; Firm Value; Emerging Markets;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies


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