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The Foreign Exchange Exposure of Japanese Multinational Corporations
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1999
Year
International Business StrategyForeign Exchange ExposureFinancial EconomicsInternational FinanceInternational Capital MarketAccountingExchange Rate MovementInternational InvestmentBusinessMultinational EnterpriseDecember 1993Foreign Exchange MarketInternational BusinessForeign ExposureFinanceCapital StructureHedging Needs
We find that about 25 percent of our sample of 171 Japanese multinationals' stock returns experienced economically significant positive exposure effects for the period January 1979 to December 1993. The extent to which a firm is exposed to exchange‐rate fluctuations can be explained by the level of its export ratio and by variables that are proxies for its hedging needs. Highly leveraged firms, or firms with low liquidity, tend to have smaller exposures. Foreign exposure is found to increase with firm size. We also find that keiretsu multinationals are more exposed to exchange‐rate risk than nonkeiretsu firms.