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Foreign exchange exposure and impact of policy switch -- the case of Malaysian listed firms

Author

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  • Obiyathulla Ismath Bacha
  • Azhar Mohamad
  • Sharifah Raihan Syed Mohd Zain
  • Mohd Eskandar Shah Mohd Rasid

Abstract

This article undertakes an in-depth study of the foreign exchange exposure of Malaysian listed firms. We examine several issues related to firm-specific and overall exposure, including an evaluation of the efficacy of adopting a hard-peg on such exposure. Our sample consists of 158 listed firms and spans the 16 year period, 1990--2005. A multivariate model using four bilateral exchange rates is used to determine firm level exposure while panel data analysis using a random-effects Generalized Least Squares (GLS) model is used to determine system-wide or aggregate sample exposure. We find a total 71% of our sample firms to have significant exchange rate exposure, a rate substantially higher than that reported for most countries, especially developed ones. The US$ is by far the single most important source of exposure with 63% of sample firms exposed to it. The sign of the beta coefficient for three of the four currencies are negative, implying that our sample firms are largely net importers in these currencies. We find exposure to be time variant and dependent on the sector within which a firm operates. Interestingly, the panel data analysis which measures aggregate exposure, shows the US$ to be a significant source of exposure even with the adoption of the hard peg. The change in policy regime to a fixed peg following the crisis appears to have had no impact at either firm-level exposure or overall system-wide exposure.

Suggested Citation

  • Obiyathulla Ismath Bacha & Azhar Mohamad & Sharifah Raihan Syed Mohd Zain & Mohd Eskandar Shah Mohd Rasid, 2013. "Foreign exchange exposure and impact of policy switch -- the case of Malaysian listed firms," Applied Economics, Taylor & Francis Journals, vol. 45(20), pages 2974-2984, July.
    • Handle: RePEc:taf:applec:v:45:y:2013:i:20:p:2974-2984
    DOI: 10.1080/00036846.2012.684790
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    Citations

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    Cited by:

    1. Bang Nam Jeon & Lei Zhu & Dazhi Zheng, 2017. "Exchange rate exposure and financial crises: evidence from emerging Asian markets," Risk Management, Palgrave Macmillan, vol. 19(1), pages 53-71, February.
    2. Nurul Anisak & Azhar Mohamad, 2020. "Foreign Exchange Exposure of Indonesian Listed Firms," Global Business Review, International Management Institute, vol. 21(4), pages 918-936, August.
    3. Raghavan, Mala & Athanasopoulos, George, 2019. "Analysis of shock transmissions to a small open emerging economy using a SVARMA model," Economic Modelling, Elsevier, vol. 77(C), pages 187-203.
    4. Mahmut Erdogan, 2016. "Foreign Exchange Exposure and Hedging of Turkish Companies: Panel Data Evidence," International Business Research, Canadian Center of Science and Education, vol. 9(6), pages 44-52, June.
    5. Ekta Sikarwar & Ganesh Kumar Nidugala, 2018. "Effect of Central Bank Intervention in Estimating Exchange Rate Exposure: Evidence from an Emerging Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1), pages 60-95, April.
    6. Muhammad Aftab & Karim Bux Shah Syed & Rubi Ahmad & Izlin Ismail, 2016. "Exchange-rate variability and industry trade flows between Malaysia and Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(4), pages 453-478, June.
    7. Jaratin Lily & Imbarine Bujang & Abdul Aziz Karia & Mori Kogid, 2018. "Exchange rate exposure revisited in Malaysia: a tale of two measures," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 409-435, December.

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