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CN 34-1054/N

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Influencing factors of the foreign exchange risk exposure of the manufacturing industry in China

  • Department of Statistics and Finance, School of Management, University of Science and Technology of China, Hefei 230026, China

Cite this:
https://doi.org/10.3969/j.issn.0253-2778.2015.03.009
  • Received Date: 13 March 2014
  • Accepted Date: 29 May 2014
  • Rev Recd Date: 29 May 2014
  • Publish Date: 30 March 2015
    Abstract

  • Abstract

    324 A-share listed companies from 10 subsectors of the manufacturing industry were taken as samples. First each companys foreign exchange risk exposure coefficient was calculated with the traditional two-factor model. Then the influencing factors were obtained through cross-sectional regression, and finally the relationship between foreign exchange risk exposure of subsectors of the manufacturing industry and the influencing factors was analyzed. It was found that 117% of the companies have significant foreign exchange risk exposure under the significance level of 10%, and that foreign exchange risk exposure has a positive correlation with export ratio, quick ratio, net cash flow of operating activities, and a negative correlation with total market value, net profit margin. The further finding is that for companies negatively affected by the appreciation of RMB, foreign exchange risk exposure has a positive correlation with total asset turnover ratio, the growth rate of basic per share earnings, and a negative correlation with research and development costs, and that for companies positively affected by the appreciation of RMB, foreign exchange risk exposure has a negative correlation with the rate of assets and liabilities, the growth rate of basic per share earnings.

    Abstract

    324 A-share listed companies from 10 subsectors of the manufacturing industry were taken as samples. First each companys foreign exchange risk exposure coefficient was calculated with the traditional two-factor model. Then the influencing factors were obtained through cross-sectional regression, and finally the relationship between foreign exchange risk exposure of subsectors of the manufacturing industry and the influencing factors was analyzed. It was found that 117% of the companies have significant foreign exchange risk exposure under the significance level of 10%, and that foreign exchange risk exposure has a positive correlation with export ratio, quick ratio, net cash flow of operating activities, and a negative correlation with total market value, net profit margin. The further finding is that for companies negatively affected by the appreciation of RMB, foreign exchange risk exposure has a positive correlation with total asset turnover ratio, the growth rate of basic per share earnings, and a negative correlation with research and development costs, and that for companies positively affected by the appreciation of RMB, foreign exchange risk exposure has a negative correlation with the rate of assets and liabilities, the growth rate of basic per share earnings.
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    • References(14)
  • [1]
    Allayannis G, Ihrig J. Exposure and markups[J]. Review of Financial Studies, 2001, 14: 805-835.
    [2]
    Stulz R M, Williamson R. Identifying and quantifying exposures[R]. Columbus, OH: Fisher College of Business, The Ohio State University, 1996: No.96-14.
    [3]
    Anna D M, Laurence J M. Transaction versus economic exposure: Which has greater cash flow consequences?[J]. International Review of Economics and Finance, 2003, 12: 437-449.
    [4]
    Adler M, Dumas B. Exposure to currency risk: Definition and measurement[J]. Financial Management, 1984, 13: 41-50.
    [5]
    Jorion P. The exchange rate exposure of U.S. multinationals[J]. Journal of Business, 1990, 63: 331-345.
    [6]
    Fama E F, French K R. Multifactor explanations of asset pricing anomalies[J]. Journal of Finance, 1996, 51: 55-84.
    [7]
    Levi M D. Exchange rates and the valuation of firms[C]// Exchange Rates and Corporate Performance, New York: Irwin, 1994: 37-48.
    [8]
    Marston R C. The effects of industry structure on economic exposure[J]. Journal of International Money and Finance, 2001, 20: 149-164.
    [9]
    Bodnar G M, Dumas B, Marston R C. Pass-through and exposure[J]. Journal of Finance, 2002, 57: 199-231.
    [10]
    Chow E H, Chen H L. The determinants of foreign exchange rate exposure: Evidence on Japanese firms[J]. Pacific-Basin Finance Journal, 1998, 6:153-174.
    [11]
    Gao T. Exchange rate movements and the profitability of U.S. multinationals[J]. Journal of International Money and Finance, 2000, 19: 117-134.
    [12]
    Ekholm K, Moxnes A, Ulltveit-Moe K H. Manufacturing restructuring and the role of real exchange rate shocks[J]. Journal of International Economics, 2012, 86:101-117.
    [13]
    Doidge C, Griffin J, Williamson R. Measuring the economic importance of exchange rate exposure[J]. Journal of Empirical Finance, 2006, 13:550-576.
    [14]
    Hutson E, Stevenson S. Openness, hedging incentives and foreign exchange exposure: A firm-level multi-country study[J]. Journal of International Business Studies, 2010, 41: 105-122.
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    [1]
    Allayannis G, Ihrig J. Exposure and markups[J]. Review of Financial Studies, 2001, 14: 805-835.
    [2]
    Stulz R M, Williamson R. Identifying and quantifying exposures[R]. Columbus, OH: Fisher College of Business, The Ohio State University, 1996: No.96-14.
    [3]
    Anna D M, Laurence J M. Transaction versus economic exposure: Which has greater cash flow consequences?[J]. International Review of Economics and Finance, 2003, 12: 437-449.
    [4]
    Adler M, Dumas B. Exposure to currency risk: Definition and measurement[J]. Financial Management, 1984, 13: 41-50.
    [5]
    Jorion P. The exchange rate exposure of U.S. multinationals[J]. Journal of Business, 1990, 63: 331-345.
    [6]
    Fama E F, French K R. Multifactor explanations of asset pricing anomalies[J]. Journal of Finance, 1996, 51: 55-84.
    [7]
    Levi M D. Exchange rates and the valuation of firms[C]// Exchange Rates and Corporate Performance, New York: Irwin, 1994: 37-48.
    [8]
    Marston R C. The effects of industry structure on economic exposure[J]. Journal of International Money and Finance, 2001, 20: 149-164.
    [9]
    Bodnar G M, Dumas B, Marston R C. Pass-through and exposure[J]. Journal of Finance, 2002, 57: 199-231.
    [10]
    Chow E H, Chen H L. The determinants of foreign exchange rate exposure: Evidence on Japanese firms[J]. Pacific-Basin Finance Journal, 1998, 6:153-174.
    [11]
    Gao T. Exchange rate movements and the profitability of U.S. multinationals[J]. Journal of International Money and Finance, 2000, 19: 117-134.
    [12]
    Ekholm K, Moxnes A, Ulltveit-Moe K H. Manufacturing restructuring and the role of real exchange rate shocks[J]. Journal of International Economics, 2012, 86:101-117.
    [13]
    Doidge C, Griffin J, Williamson R. Measuring the economic importance of exchange rate exposure[J]. Journal of Empirical Finance, 2006, 13:550-576.
    [14]
    Hutson E, Stevenson S. Openness, hedging incentives and foreign exchange exposure: A firm-level multi-country study[J]. Journal of International Business Studies, 2010, 41: 105-122.
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