Foreign Exchange Exposure of 'Domestic' Corporations

35 Pages Posted: 14 Mar 2006

See all articles by Joel T. Harper

Joel T. Harper

Miami University of Ohio - Department of Finance

Raj Aggarwal

University of Akron; Federal Reserve Banks - Federal Reserve Bank of Cleveland; Kent State University; Kent State University Foundation

Date Written: December 21, 2005

Abstract

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

Harper, Joel T. and Aggarwal, Raj, Foreign Exchange Exposure of 'Domestic' Corporations (December 21, 2005). Available at SSRN: https://ssrn.com/abstract=890584 or http://dx.doi.org/10.2139/ssrn.890584

Joel T. Harper (Contact Author)

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

Raj Aggarwal

University of Akron ( email )

Akron, OH 44325-4803
United States

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

East 6th & Superior
Cleveland, OH 44101-1387
United States

Kent State University ( email )

College of Business Administration
Kent, OH 44242-0001
United States

Kent State University Foundation ( email )

Akron, OH 44325-4803
United States

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