Tamsui, Taipei : Tamkang University, Department of Management Sciences and Decision Making
It has been viewed as an unsolved puzzle that for only a small number of firms a significant impact of foreign exchange rate risk on firm value could be detected empirically even though the financial theory strongly supports that a change in the exchange rate should affect the value of the firm. We explain it by the facts that (i) previous studies mostly investigated mature and non-open economies, (ii) they mostly concentrated on one part of the relationship between exchange rate exposure and firm value and (iii) the second-moment exchange rate exposure is frequently ignored. Our empirical results are based on a sample of 107 Taiwanese non-financial firms from 6th June 1990 to 14th July 2010 and the bilateral exchange rate USO / TWO. We use an orthogonalized conventional augmented CAPM model with asymmetric and Generalized Autoregressive Conditional Heteroskedasticity in Mean (GARCH-M) specifications in view to take into account stylized facts associated with financial time series and analyze the impact ofthe exchange rate volatility on firm returns. We find strong evidence of exchange rate exposure (88.8% of our sample) and all exposed firms benefit from an appreciation of the domestic currency (TWO). 32.6% of the exposed firms exhibit an asymmetric profile. Sign asymmetry tends to increase the exposure coefficient while magnitude asymmetry has an opposite effect. 8.4% of the exposed firms are affected by the exchange rate volatility, but not uniformly: 62.5% of the cases show a trade-off while 37.5% ex.hibit a positive relation: firms benefIt from the volatility.
Proceedings of the 2011 International Conference in Management Sciences and Decision Making= 2011年管理科學與經營決策國際學術研討會論文集, pp.279-292