erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Exchange Rate Exposure and Firm Size: Is There Any Relationship?

Sadık ÇUKUR (Abant İzzet Baysal University)

Abstract  

Recent years have witnessed a sharp change in international relations. Liberalisation programs in most of the countries have increased international trade. The new face of trade inevitably has created many opportunities and many risks and a vast amount of academic studies have devoted to analyse the new face of trade. Exchange rate exposure is one of the most important risks for a firm that engages in international activities in one way. Depending the movement of the exchange rates, the firms may have a big opportunity or risk stemming from the change of competitiveness. If a firm faces to exchange rate exposure, then its sales, profit margin, market share, profit and hence the value of firm may change. This study searches for the effect of the exchange rate exposure for British Companies based on the size of the companies. To do so, we firstly create a size portfolio for each group; small companies, medium-size, and large companies. We also create a sectoral real effective exchange rate to measure the exchange rate exposure. By using Jorion’s (1990) model, we test the portfolios performance against exchange rate changes. Portfolio test results do not show any definite pattern possibly because of aggregation. The results force us to employ a firm level analysis. Firm level analysis shows some differences among the sizes despite of no definite pattern. In general, the results show some definite evidence for the presence of the exchange rate exposure. However, these results can not be associated with the size of the companies.

Economic Research Center
Middle East Technical University
06531 Ankara Turkey
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e-mail: metuerc@metu.edu.tr