Foreign Exchange Exposure of 'Domestic' Corporations
35 Pages Posted: 14 Mar 2006
Date Written: December 21, 2005
Unlike prior studies that have focused on multinational companies, this paper documents that domestic companies face significant foreign exchange exposures. Indeed, on average domestic firm foreign exchange exposure is not significantly different from the exposures faced by firms that are directly involved in international activity. Furthermore, we find that the number of domestic firms with significant foreign exchange exposure increases with the estimation horizon used to measure exposure and the level of domestic firm exposure is related negatively to firm size, positively to the market-to-book ratio, and to a lesser extent, positively to financial leverage, negatively to asset turnover, and negatively to industry concentration. These results are robust to alternative procedures to estimate foreign exchange exposure and have significant implications for managers and accounting standard setters.
Keywords: Exchange Rate Exposure, Foreign Exchange Risk, Currency Exposure, Currency Risk
JEL Classification: F23, F31, G15
Suggested Citation: Suggested Citation