Protecting Subsidiaries from Exchange Rate Risk:The Role of Ownership Ratios in Invoice Currency Choices

This study examines the determinants of invoice currency choice in Japanese export transactions to Thailand, utilizing granular data from Japan Customs. A key contribution of this study is its examination of how the ownership ratio (OSR) of Thai importers influences invoice currency choice in exports by Japanese complete car manufacturers and their subsidiaries. The empirical analysis reveals that a higher OSR of Thai importers is associated with a decreased likelihood of yen-denominated transactions. Furthermore, this study explores how invoice currency preferences diverge across different trade channels, including intra-firm trade. The findings reveal distinct patterns: parent companies predominantly prefer U.S. dollar-invoiced exports, whereas domestic subsidiaries—constrained by their limited capacity to manage exchange rate risks—exhibit a strong preference for yen-invoiced exports. These results underscore the significant differences in invoice currency strategies across trade channels. Notably, the analysis suggests that parent companies strategically select invoice currencies—whether yen or foreign currencies—as part of a broader effort to protect their foreign subsidiaries from exchange rate volatility, reflecting a deliberate approach to centralized risk management.