A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms

33 Pages Posted: 18 Jan 2003

See all articles by Abe de Jong

Abe de Jong

Rotterdam School of Management, Erasmus University; Monash University

Jeroen E. Ligterink

University of Amsterdam - Department of Finance and Organization

Victor Macrae

Nyenrode University - Center for Finance

Date Written: September 2002, 12

Abstract

We examine the relationship between exchange-rate changes and stock returns for a sample of Dutch firms over 1994-1998. We find that over 50% of the firms are significantly exposed to exchange-rate risk. Furthermore, all firms with significant exchange-rate exposure benefit from a depreciation of the Dutch guilder relative to a trade-weighted currency index. This result confirms that firms in open economies, such as the Netherlands, exhibit significant exchange-rate exposure. We collect unique information on the most relevant individual currencies for each firm with respect to their influence on firm value. Our results indicate that the use of a trade-weighted currency index and the use of individual exchange rates are complements. We also measure the determinants of exchange-rate exposure. As expected, we find that firm size and the foreign sales ratio are significantly and positively related to exchange-rate exposure. In contrast with our hypothesis, off-balance hedging using derivatives has no significant effects. Finally, in line with theory, we find that exposure is significantly reduced through on-balance sheet hedging, i.e. through foreign loans and by producing in factories abroad.

Keywords: foreign exchange rates, exposure measurement, international finance, risk management, The Netherlands

JEL Classification: M, M41, G3, F31, G15

Suggested Citation

de Jong, Abe and Ligterink, Jeroen E. and Macrae, Victor, A Firm-Specific Analysis of the Exchange-Rate Exposure of Dutch Firms (September 2002, 12). ERIM Report Series Reference No. ERS-2002-109-F&A. Available at SSRN: https://ssrn.com/abstract=371057

Abe De Jong (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-25
Rotterdam, 3000 DR
Netherlands
+31 10 408 1022 (Phone)

HOME PAGE: http://https://www.rsm.nl/people/abe-de-jong/

Monash University ( email )

900 Dandenong Rd
Room H3-56
Caulfield East, Victoria 3145
Australia

HOME PAGE: http://https://research.monash.edu/en/persons/abe-de-jong

Jeroen E. Ligterink

University of Amsterdam - Department of Finance and Organization

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Victor Macrae

Nyenrode University - Center for Finance ( email )

3621 BG Breukelen
Netherlands

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