International evidence on the determinants of foreign exchange rate exposure of multinational companies

Faff, Robert W. and Marshall, Andrew (2005) International evidence on the determinants of foreign exchange rate exposure of multinational companies. Journal of International Business Studies, 36 5: 539-558. doi:10.1057/palgrave.jibs.8400155


Author Faff, Robert W.
Marshall, Andrew
Title International evidence on the determinants of foreign exchange rate exposure of multinational companies
Journal name Journal of International Business Studies   Check publisher's open access policy
ISSN 0047-2506
1478-6990
Publication date 2005-09
Sub-type Article (original research)
DOI 10.1057/palgrave.jibs.8400155
Volume 36
Issue 5
Start page 539
End page 558
Total pages 10
Place of publication Basingstoke, United Kingdom
Publisher Palgrave Macmillan
Language eng
Abstract In this paper we explore some of the potential determinants of foreign exchange (FX) exposure and firm value. We contribute to previous research on stock returns and firm value as we have access to a unique survey database and can include as determinants in our empirical analysis the objectives and emphasis on risk management, as well as considering previous factors including the nature of the business environment. We can also examine any regional influences as our sample includes UK, US and Asia Pacific multinational companies (MNCs). As predicted by theory, we find some evidence that MNCs with greater foreign operations have a larger magnitude of FX exposure. However, our proxy for the emphasis of FX management does not have the predicted negative association with the magnitude of FX, indicating that managers may focus on short-term cash flows in their FX management rather than firm value. With regard to the potentially differential regional role of our variables, a range of interesting results is found. Arguably, in our most notable such finding, we see that the contribution of overseas business to total revenues has no association with the magnitude of FX exposure for US MNCs: it has a positive role for UK MNCs (consistent with theory) and a negative role for Asia Pacific MNCs, which could be explained by macroeconomic and/or financial characteristics of the MNCs in the sample. © 2005 Academy of International Business All rights reserved.
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Journal Article
Sub-type: Article (original research)
Collection: UQ Business School Publications
 
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Created: Tue, 08 Mar 2011, 12:58:02 EST by Karen Morgan on behalf of UQ Business School