Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations
41 Pages Posted: 27 Jun 2002
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Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations
Linear and Nonlinear Foreign Exchange Rate Exposures of German Nonfinancial Corporations
Date Written: February 16, 2002
Abstract
It has been viewed as an unsolved puzzle that only for a small number of firms a significant impact of foreign exchange rate risk on firm value could be detected empirically. This paper investigates whether the results of previous studies can be explained by the fact that only the linear exposure component has been estimated or that exchange rate indices were used. For a comprehensive sample of German firms, empirical evidence is presented for the existence of significant linear and nonlinear exposures, which can be identified for bilateral as well as multilateral foreign exchange rates. The percentage of foreign sales, measures of firm liquidity and industry sectors are significant determinants of the exposure.
JEL Classification: G3, F4, F3
Suggested Citation: Suggested Citation
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