Template-Type: ReDIF-Paper 1.0
Author-Name: de Jong, A.
Author-Name-Last: de Jong
Author-Name-First: Abe
Author-Name: Ligterink, J.
Author-Name-Last: Ligterink
Author-Name: Macrae, V.
Author-Name-Last: Macrae
Title: A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms
Abstract: 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.
Creation-Date: 2002-12-09
File-URL: https://repub.eur.nl/pub/261/erimrs20021209150848.pdf
File-Format: application/pdf
Series: RePEc:ems:eureri
Number: ERS-2002-109-F&A
Classification-JEL: F31, G15, G3, M, M41
Keywords: The Netherlands, exposure measurement, foreign exchange rates, international finance, risk management
Handle: RePEc:ems:eureri:261