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Exchange Rate Effects On A Small Open Economy: Evidence From Taiwanese Firms

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  • Fujen Daniel Hsiao
  • Lei Han

Abstract

Previous empirical research discovered only mild, if any, sensitivity of firm value to exchange rate fluctuation. Chen et al. (2004) provided some insights by focusing on a small and open economy and found evidence that New Zealand that exchange rate movement affects firm value. This study reexamines firm value sensitivity to exchange rate fluctuation by focusing on individual firms as well as on three industry Taiwan sectors, high-tech, service, and manufacturing industries. By using the two-factor model with residual regression, we find consistent results that volatility of exchange rates affects the value of Taiwanese firms. The results hold regardless of the exchange rate exposure to US dollar, Japanese Yen, or Euro. In addition, the positive association between exchange rate exposure and firm value is significant and consistent for all firm samples and three industry-specific samples.

Suggested Citation

  • Fujen Daniel Hsiao & Lei Han, 2012. "Exchange Rate Effects On A Small Open Economy: Evidence From Taiwanese Firms," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 6(3), pages 1-12.
    • Handle: RePEc:ibf:ijbfre:v:6:y:2012:i:3:p:1-12
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    References listed on IDEAS

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    More about this item

    Keywords

    Foreign exchange exposure; Residual regression; Exchange rate fluctuations; Firm value;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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