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Invoicing Currency, Firm Size, and Hedging

Author

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  • Julien Martin
  • Isabelle Méjean

Abstract

We use the results of a survey conducted on a sample of 3,013 exporting firms located in 5 EMU countries to explore the link between the invoicing currency of exports, firm size, and hedging. About 90% of firms in the sample invoice exports in their (producer) currency. Large firms are more likely to use another currency. The aggregate use of the euro is thus 15 percentage points lower when firms are weighted by their size than for the average firm. This heterogeneity is robust to controlling for determinants of the invoicing choice stressed by the literature. We however show that large firms and firms pricing in another currency as the euro are also more likely to hedge against exchange rate risk. An IV estimation shows the causal impact of access to hedging on the choice of the invoicing currency. We find (large) firms having access to hedging being more likely to invoice in the importer’s currency.

Suggested Citation

  • Julien Martin & Isabelle Méjean, 2012. "Invoicing Currency, Firm Size, and Hedging," Working Papers 2012-28, CEPII research center.
  • Handle: RePEc:cii:cepidt:2012-28
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    References listed on IDEAS

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    1. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    2. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
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    Cited by:

    1. Ariu, Andrea, 2012. "Services Versus Goods Trade: Are They The Same?," CEPR Discussion Papers 9036, C.E.P.R. Discussion Papers.
    2. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, pages 1942-1978.
    3. Chung, Wanyu, 2016. "Imported inputs and invoicing currency choice: Theory and evidence from UK transaction data," Journal of International Economics, Elsevier, pages 237-250.
    4. Maria V. Sokolova, 2015. "Strategic Currency Choice in International Trade," CESifo Working Paper Series 5574, CESifo Group Munich.
    5. Wanyu Chung, 2014. "Imported Inputs and Invoicing Currency Choice: Theory and Evidence from UK Transaction Data," Discussion Papers 2014-11, University of Nottingham, GEP.
    6. Maria V. Sokolova, 2016. "Better More Than One: Portfolio Currency Pricing and Exchange Rate Hedging," IHEID Working Papers 03-2016, Economics Section, The Graduate Institute of International Studies.

    More about this item

    Keywords

    Invoicing currency; Financial hedging; Firm-level data;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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