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International evidence on determinants of foreign exchange rate exposure of multinational companies

Faff, Robert W. and Marshall, Andrew P. (2005) International evidence on determinants of foreign exchange rate exposure of multinational companies. Journal of International Business Studies, 36 (5). pp. 539-558. ISSN 0047-2506

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Abstract

In this paper we explore some of the potential determinants of foreign exchange (FX) exposure and firm value. We contribute to previous research on stock returns and firm value as we have access to a unique survey database and can include as determinants in our empirical analysis the objectives and emphasis on risk management, as well as considering previous factors including the nature of the business environment. We can also examine any regional influences as our sample includes UK, US and Asia Pacific multinational companies (MNCs). As predicted by theory, we find some evidence that MNCs with greater foreign operations have a larger magnitude of FX exposure. However, our proxy for the emphasis of FX management does not have the predicted negative association with the magnitude of FX, indicating that managers may focus on short-term cash flows in their FX management rather than firm value. With regard to the potentially differential regional role of our variables, a range of interesting results is found. Arguably, in our most notable such finding, we see that the contribution of overseas business to total revenues has no association with the magnitude of FX exposure for US MNCs: it has a positive role for UK MNCs (consistent with theory) and a negative role for Asia Pacific MNCs, which could be explained by macroeconomic and/or financial characteristics of the MNCs in the sample.

Item type: Article
ID code: 3638
Keywords: foreign exchange, risk exposure, cross-sectional determinants, international evidence, exchange rate, multinational companies, Finance, Business, Management and Accounting(all), Economics and Econometrics, Business and International Management, Strategy and Management, Management of Technology and Innovation
Subjects: Social Sciences > Finance
Department: Strathclyde Business School > Accounting and Finance
Related URLs:
    Depositing user: Strathprints Administrator
    Date Deposited: 05 Jul 2007
    Last modified: 04 Sep 2014 13:29
    URI: http://strathprints.strath.ac.uk/id/eprint/3638

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