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Exchange rate and corporate investment: Heterogeneous effects via the global value chain networks

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  • Huang, Wendi
  • Zhang, Weikang

Abstract

This study analyzes how exchange rates affect corporate investment by scrutinizing firms' global value chain (GVC) networks. A salient feature of our analysis is that we adopt novel GVC datasets and methodologies to construct upstream- and downstream-specific exchange rates. We couple these GVC-integrated real exchange rates with global firm-level data and document that unfavorable exchange rate movements hinder operating performance and, therefore, corporate investment, especially among financially constrained firms. We use two large currency shocks in Brazil and Sweden to provide causal evidence. The results highlight nonnegligible frictions of how GVC-integrated real exchange rates affect corporate investment.

Suggested Citation

  • Huang, Wendi & Zhang, Weikang, 2024. "Exchange rate and corporate investment: Heterogeneous effects via the global value chain networks," Journal of International Money and Finance, Elsevier, vol. 147(C).
    • Handle: RePEc:eee:jimfin:v:147:y:2024:i:c:s0261560624001463
    DOI: 10.1016/j.jimonfin.2024.103159
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    More about this item

    Keywords

    Exchange rate effects; Corporate investment; Global value chains; Financial constraints;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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