A Firm-Specific Analysis of Taiwan Foreign Exchange Rate Exposure: A Panel Data Approach

International Journal of Economics and Management Studies

© 2015 by SSRG - IJEMS Journal

Volume 2 Issue 2

Year of Publication : 2015

Authors : R. F. Franck Varga

10.14445/23939125/IJEMS-V2I1P106

How to Cite?

R. F. Franck Varga, "A Firm-Specific Analysis of Taiwan Foreign Exchange Rate Exposure: A Panel Data Approach," SSRG International Journal of Economics and Management Studies, vol. 2,  no. 2, pp. 23-31, 2015. Crossref, https://doi.org/10.14445/23939125/IJEMS-V2I1P106

Abstract:

This study investigates the determinants of Taiwanese foreign exchange exposure, using firm-specific operational and financial variables from 1990 to 2010. After testing six hypotheses on the relationship between variables and level of exposure, we find 7 statistically significant determinants which is a quite large number, compared to the relevant literature. Foreign operations, size, liquidity, profitability and hedging have all an impact on exposure. The ratio export to sales, total assets, the ratio current assets to total assets and option hedging increase the level of exposure, while net sales, net income and forward hedging decrease it. This research provides a better understanding of Taiwanese exposure. If a variable increases the level of exposure, it means that it is related to a benefit from an appreciation of the domestic currency

Keywords:

Exchange rate exposure, Exposure Determinants, Panel analysis, Taiwan JEL classification: C23, F31, G12, G15, G31

References:

1. AGGARWAL, R., HARPER, J., T., 2010, foreign Exchange Exposure of “Domestic” Corporations, Journal of International Money and Finance, Vol. 29, 1619-1636
2. AGYEY-AMPOMAH, S., MAZOUZ, K., and YIN, S., 2013, The foreign exchange exposure of UK non-financial firms: A comparison of market-based methodologies, International Review of Financial Analysis, Vol. 29, Pages 251–260
3. ALLAYANNIS, G., and OFEK, E., 2001, Exchange Rate Exposure, Hedging and the Use of Foreign Currency Derivatives, Journal of International Money and Finance, Vol. 20, 273-296
4. ALLAYANNIS, G., and WESTON, J., 2001, The Use of Foreign Currency Derivatives and Firm Market Value, Review of Financial Studies, Vol. 14, 243-276
5. ANDREN, N., 2001, Is macroeconomic exposure asymmetric?, Department of Business Administration, Lund University, Working Paper
6. BARTRAM, S. M., 2004, Linear and Nonlinear foreign Exchange Rate exposure of German Non Financial Corporation, Journal of International Money and Finance, vol. 23, 673-699
7. BARTRAM, S.M., BROWN, G.W., and MINTON B.A., 2010, Resolving the exposure puzzle: The many facets of exchange rate exposure, Journal of Financial Economics, Vol. 95, 148-173.
8. BODNAR, G. M. and WONG, M. H. F., 2000, Estimating Exchange Rate Exposures: Some “Weighty” Issues, NBER Working Paper Series, Working Paper No. 7497
9. BODNAR, G. M., HAYT, G., and MARSTON, R., 1998, Wharton Survey of Financial Risk Management by US Non-Financial Firms, Financial Management, Vol. 27, 70-91
10. BROWN, G.W., 2001, Managing Foreign Exchange Risk with Derivatives, Journal of Financial Economics, Vol. 60, 401-448.
11. CHOI, J. and PRASAD, A. M., 1995, Exchange Rate Sensitivity and its Determinants: A Firm and Industry Analysis of U.S. Multinationals, Financial Management, Vol. 24, No. 3, 77-88
12. CHOW, E., and CHEN, H., 1998, The Determinants of Foreign Exchange Rate Exposure: Evidence from Japanese Firms, Pacific-Basin Finance Journal, 153-174
13. CHOW, E., LEE W., and SOLT, M., 1997, The Economic Exposure of US Multinational Firms, The Journal of Financial Research, 191-210
14. De JONG, A., LIGTERINK, J., MACRAE, V., 2002, A Firm-Specific Analysis of the Exchange rate Exposure of Dutch Firms, ERIM Report Series Research in Management, ERS-2002-109-F&A
15. DOIDGE, C., GRIFFIN, J., and WILIAMSON, R., 2002, Does Exchange Rate Exposure Matter?, Working Paper, Ohio State University
16. DOMINGUEZ, K., and TESAR, L., 2001a, A Re-Examination of Exchange Rate Exposure, American Economic Review Papers and Proceedings, 396-399
17. DOMINGUEZ, K., and TESAR, L., 2001b, Trade and Exposure, American Economic Review Papers and Proceedings, 367-370
18. GAO, T., 2000, Exchange Rate Movements and the Profitability of US Multinationals, Journal of International Money and Finance, 117-134
19. GECKZY, C., MINTON, B., and SCHRAND, C., 1997, Why Firms Use Currency Derivatives, Journal of Finance, 1323-1354
20. HE, J. and NG, L. K., 1998, the Foreign Exchange Exposure of Japanese Multinational Corporations, Journal of Finance, Vol. 53, Issue 2, 733-753.
21. JORION, P., 1990, The Exchange-Rate Exposure of U.S. Multinationals, Journal of Business, Vol. 63, No. 3, 331-345
22. KOUTMOS G. and MARTIN A.D., 2003, Asymmetric Exchange Rate Exposure: Theory and Evidence, Journal of International Money and Finance, Vol. 22, 365-383
23. LI, J-F., LIN, Y-B., HONG, C-Y., 2011, The Impact of Unexpected Changes in Exchange Rate on Firms’ Value: Evidence from a Small Open Economy, African Journal of Business Management, Vol. 5(7), 2786-2793
24. MARSTON, R., 2001, The Effects of Industry Structure on Economic Exposure, Journal of International Money and Finance, Vol. 20, 149-164
25. MULLER, A., VERSCHOOR, W., F., C., 2006, European foreign Exchange Risk Exposure, European Financial Management, Vol. 12, 195-220
26. NANCE, D., SMITH Jr., C., and SMITHSON, C., 1993, On the Determinants of Corporate Hedging, Journal of Finance, Vol. 48, 391-405
27. SMITH, C., and STULZ, R., 1985, The Determinants of Firms’ Hedging Policies, Journal of Financial and Quantitative Analysis, 391-405
28. SOLAKOGLU, M., N., 2005, Exchange Rate Exposure and Firm-specific Factors: Evidence from Turkey, Journal of Economic and Social Research, Vol. 7(2), 35-46
29. VARGA, R., F., 2013, Exchange Rate Exposure: Do Asymmetries and Volatilities Matter? Evidence from the Taiwan Stock Market, International Business Research, Vol. 6, No. 7, 120-130
30. WARNER, J., 1977, Bankruptcy Costs: Some Evidence, Journal of Finance, 337-348
31. WILLIAMSON, R., 2001, Exchange Rate Exposure and Competition: Evidence from the Automotive Industry, Journal of financial Economics, Vol. 59, 441-475