Invoice Currency Choice in Intra-Firm Trade: A Transaction-Level Analysis of Japanese Automobile Exports

This study empirically investigates the extent to which the choice of invoice currency differs between intra-firm and arm fs length exports. We also examine whether other firm- and product-level factors affect the choice of invoice currency. This study is the first to be granted access to highly disaggregated transaction-level data on Japanese automobile exports to France. By conducting panel logit estimation, we demonstrate that importers f currency tends to be chosen in intra-firm export invoicing, which has not been rigorously shown in previous literature. Our empirical findings remain robust when introducing different types of intra-firm export variables and other conventional explanatory variables such as firm- and product market share, exchange rate volatility, a dummy for intermediate goods exports, euro-invoiced imports, labor productivity, and research and development intensity. Amid growing intra-firm trade and expanding global value chains, Japanese parent firms tend to invoice using the importer fs currency, assuming the foreign exchange risk that arises from intra-firm trade; thus, exchange rate risk management is a significant consideration for Japanese parent firms.