Exchange Rate Regime, Industry Structure, and Foreign Exchange Exposure: An Empirical Study on US Multinationals

• Main Authors: Cheng-Chang WU, 吳承璋
• Other Authors: Sheng-Yung YANG
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/3wy72v

碩士 === 國立暨南國際大學 === 經濟學系 === 92 === The U.S. multinationals have a deep impact on the world economy and their management methods lead the world. Under such a globally competitive world, it induces multinationals to engage in foreign investment and world-wide operation. Exchange rate fluctuations have imposed a growing influence on the firm value. This study theoretically adopts Markov-switching ARCH（SWARCH）model of Hamilton and Susmel（1994）. Via a SWARCH setting, model exchange rate return variances as being state varying, then we investigate the foreign exchange exposure of U.S. multinationals in the different volatility regimes. The empirical results show that daily data reveal a stronger connection between exchange rate changes and the firm value. Whether separating overall sample period into the strong and weak dollar regimes by empirical regimes or Markov Switching model, we find that a higher percentage of firms have significant exposure during the weak-dollar period. An apparent rise of exposure ratio occurs during the flat-dollar period. It might be from multinationals’ carelessness about currency fluctuations. More specially, we find that the magnitude of foreign exchange exposure is larger in the high volatility regime, because the firms are more exposed to the high volatility of exchange rate return. Further, evidence suggests that significantly negative correlation between firm size and foreign exchange exposure, and quick ratio is positively related with exposure. Compared to all industries, raw materials and chemical industries have smaller exposures, but electrical equipment industry reverses. Finally, if a firm sales to the diversified foreign markets, it tends to be with a lower exposure. Therefore, multinationals can reduce foreign exchange exposure via diversifying its foreign sales markets.