Exchange Rate Regimes and Foreign Exchange Exposure: The Case of Emerging Market Firms

41 Pages Posted: 30 Jan 2014

See all articles by Min Ye

Min Ye

Hunan University - College of Finance and Statistics; University College Dublin (UCD) - Michael Smurfit Graduate School of Business

Elaine Hutson

Monash University - Dept of Banking and Finance; Financial Research Network (FIRN)

Cal B. Muckley

University College Dublin

Date Written: January 28, 2014

Abstract

We investigate the influence of exchange rate regimes on the foreign exchange exposure of emerging market firms. Using a sample of 1,523 firms from 20 countries for the period December 1999 to December 2010, we find that about half of the firms are significantly exposed to exchange rate fluctuations. We find that non-floating exchange rate arrangements are associated with more widespread exposure as well as a greater magnitude of firms’ exposure. Cross-sectional analyses suggest that the exchange rate regime is an important determinant of firm-level exchange rate exposure for emerging market firms, and that pegged exchange rate regimes amplify exposure. This result holds after controlling for a wide range of potential determinants of firm-level and country-level foreign exchange exposure. Our findings suggest that exchange rate regime matters at the micro as well as well as the macro level; non-floating regimes fail to protect firms from exchange rate exposure.

Suggested Citation

Ye, Min and Hutson, Elaine and Muckley, Cal B., Exchange Rate Regimes and Foreign Exchange Exposure: The Case of Emerging Market Firms (January 28, 2014). Available at SSRN: https://ssrn.com/abstract=2387225 or http://dx.doi.org/10.2139/ssrn.2387225

Min Ye

Hunan University - College of Finance and Statistics ( email )

College of Finance and Statistics
Changsha, 410079
China

University College Dublin (UCD) - Michael Smurfit Graduate School of Business ( email )

Blackrock, Co. Dublin
Ireland

Elaine Hutson (Contact Author)

Monash University - Dept of Banking and Finance ( email )

PO Box 197
Caulfield East, Victoria 3145
Australia
+61399032110 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Cal B. Muckley

University College Dublin ( email )

Blackrock, Co. Dublin
Ireland
+353-1-716-8091 (Phone)

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