2002-12-09
A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms
Publication
Publication
We examine the relationship between exchange-rate changes and stock returns for a sample of Dutch firms over 1994-1998. We find that over 50% of the firms are significantly exposed to exchange-rate risk. Furthermore, all firms with significant exchange-rate exposure benefit from a depreciation of the Dutch guilder relative to a trade-weighted currency index. This result confirms that firms in open economies, such as the Netherlands, exhibit significant exchange-rate exposure. We collect unique information on the most relevant individual currencies for each firm with respect to their influence on firm value. Our results indicate that the use of a trade-weighted currency index and the use of individual exchange rates are complements. We also measure the determinants of exchange-rate exposure. As expected, we find that firm size and the foreign sales ratio are significantly and positively related to exchange-rate exposure. In contrast with our hypothesis, off-balance hedging using derivatives has no significant effects. Finally, in line with theory, we find that exposure is significantly reduced through on-balance sheet hedging, i.e. through foreign loans and by producing in factories abroad.
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Erasmus Research Institute of Management | |
hdl.handle.net/1765/261 | |
ERIM Report Series Research in Management | |
Organisation | Erasmus Research Institute of Management |
de Jong, A., Ligterink, J., & Macrae, V. (2002). A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms (No. ERS-2002-109-F&A). ERIM Report Series Research in Management. Retrieved from http://hdl.handle.net/1765/261 |