Post by Sapphire Capital on Aug 7, 2008 23:07:37 GMT 4
A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms
Abe De Jong
Erasmus University Rotterdam (EUR) - Department of Financial Management
Jeroen E. Ligterink
University of Amsterdam - Department of Finance and Organization
Victor Macrae
Nyenrode University - Center for Finance
September 2002, 12
ERIM Report Series Reference No. ERS-2002-109-F&A
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.
papers.ssrn.com/sol3/Delivery.cfm/261.pdf?abstractid=1098504&mirid=4
Abe De Jong
Erasmus University Rotterdam (EUR) - Department of Financial Management
Jeroen E. Ligterink
University of Amsterdam - Department of Finance and Organization
Victor Macrae
Nyenrode University - Center for Finance
September 2002, 12
ERIM Report Series Reference No. ERS-2002-109-F&A
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.
papers.ssrn.com/sol3/Delivery.cfm/261.pdf?abstractid=1098504&mirid=4