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Mutual fund ownership and foreign exchange risk in Chinese firms

Author

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  • Hutson, Elaine
  • Laing, Elaine
  • Ye, Min

Abstract

We examine the effect of a potentially important external governance mechanism – mutual fund ownership – on the extent to which Chinese firms are exposed to exchange rate movements. Using a sample of 560 firms over the period 2005–2011, we show that greater mutual fund ownership is associated with lower exposure to the US dollar, and that this effect is greatest for firms with higher state ownership. We contend that these findings can be explained by mutual funds ensuring that Chinese firms limit their unhedged dollar-denominated borrowing. This paper contributes to the literature on the benefits to Chinese firms’ shareholders of institutional ownership, and to the growing body of evidence on the favorable effects of good governance on firms’ risk management practices.

Suggested Citation

  • Hutson, Elaine & Laing, Elaine & Ye, Min, 2019. "Mutual fund ownership and foreign exchange risk in Chinese firms," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 60(C), pages 169-192.
    • Handle: RePEc:eee:intfin:v:60:y:2019:i:c:p:169-192
    DOI: 10.1016/j.intfin.2018.12.012
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    Cited by:

    1. Jamila Abaidi Hasnaoui & Syed Kumail Abbas Rizvi & Krishna Reddy & Nawazish Mirza & Bushra Naqvi, 2021. "Human capital efficiency, performance, market, and volatility timing of asian equity funds during COVID-19 outbreak," Journal of Asset Management, Palgrave Macmillan, vol. 22(5), pages 360-375, September.
    2. Sikarwar, Ekta, 2020. "Forex interventions and exchange rate exposure: Evidence from emerging market firms," Economic Modelling, Elsevier, vol. 93(C), pages 69-81.
    3. Sikarwar, Ekta, 2022. "Board attributes, hedging activities and exchange rate risk: Multi-country firm-level evidence," Economic Modelling, Elsevier, vol. 110(C).
    4. Hossain Mohammad Reyad & Mohd Ashhari Zariyawati & Tze San Ong & Haslinah Muhamad, 2022. "The Impact of Macroeconomic Risk Factors, the Adoption of Financial Derivatives on Working Capital Management, and Firm Performance," Sustainability, MDPI, vol. 14(21), pages 1-19, November.

    More about this item

    Keywords

    Mutual fund ownership; Hedging; Foreign exchange exposure; China;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance

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