Foreign risk exposure of United States multinational firms: Firm- and industry-level analysis with region-specific dataset.

摘要

This dissertation examines the impact of foreign exchange rate movements on the value of multinational firms. First, in order to provide a theoretical framework on the foreign exposure mechanism and determinants, I employ a standard profit-maximizing model for two types of firms: ones with domestic operations only and others with both domestic and foreign operations. This theoretical analysis shows that (1) exchange rate movements affect the value of both firms and (2) the determinants of foreign risk exposure are firm-specific factors, such as sales and assets, and the industry-specific factor, such as the price elasticity of market demand.; As the next step, this dissertation empirically evaluates the theory. Considering the problems causing most previous studies to fail to find a significant exposure, I examine U.S. multinational firms that had Asian and Mexican operations during the "fast and furious"1 Asian and Mexican crises. Based on the hypothesis that the unexpectedly greater fluctuations in the foreign currencies during the crises would mitigate effectiveness of the firms' risk management for the currencies, I find that the sample firms are more likely to be exposed during the crises. Also, by decomposing exposures into firm-specific factors, I find that the sample firms are more exposed as they have more sales and assets in the areas and when they have smaller number of employees or are affiliated with one or two industries. These results are consistent with optimal hedging theory in terms of economies of scale in hedging activities.; Finally, in addition to the firm-level analysis, I analyze industry-level foreign exposure, which sheds light on the importance of industry-specific effects for exposure. By segregating the firms into industrial groups, I find that foreign exposures of the two-digit SICs differ from each other, and the manufacturing industry is more exposed than any other due to their greater foreign trade. Also, for industries within manufacturing, I find that durable goods, non-intermediate goods, and competitive-structure industry are more exposed than non-durable, intermediate goods, and non-competitive industry, respectively.; 1This term is originally from the article, Kamisky et al., "The Unholy Trinity of Financial Contagion," Journal of Economic Perspectives, Fall 2003.