1 Exchange Rate Uncertainty and Firm Pro�tability

University of Liverpool Liverpool, United Kingdom
Journal of Macroeconomics (Impact Factor: 0.62). 02/2001; 23(4):565-576. DOI: 10.1016/S0164-0704(01)00178-1
Source: RePEc


This paper investigates the effects of permanent and transitory components of the exchange rate onf firms' profitability under imperfect information. Utilizing a signal extraction framework, we show that the variances of these components of the exchange rate process will have indeterminate effects on the firm's growth rate of profits, but will have predictable effects on its volatility. An increase in the variance of the permanent (transitory) component in the exchange rate process leads to greater (lesser) variability in the growth rate of the firm's profits, thus establishing that the source of exchange rate volatility matters in analyzing its effects. Implications of our theoretical findings for the empirical modeling of the underlying relationships are discussed.

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Available from: Christopher Baum, Mar 11, 2014
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    • "Reel değer kaybı ve reel değer kazancının firmaların performansı üzerindeki etkisinin büyüklüğü ise ihraç ve ithal mallarının talep esnekliklerine bağlıdır (Hillier, 1991, 141-142). *Yatırım kararları üzerindeki etki: Uluslararası ticaret ile uğraşan firma yöneticilerinin, döviz kurunda yaşanan değişimlerin kalıcı mı yoksa geçici mi olduğu konusunda isabetli öngörülerde bulunamamaları halinde, yatırım kararları ertelenmektedir (Baum vd., 2001, 2-3). *Rekabet gücü etkisi: Döviz kurlarında meydana gelen değişimler firmaların rakipleri karşısındaki rekabet güçlerini de etkileyebilmektedir. "
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    ABSTRACT: The main purpose of this study is to examine the long term relationship between the real exchange rate, added value created by the firms, capital-labor ratio and firms’ domestic sales, exports, total sales and profitability for the 1993-2009 period by using econometric methods. The findings obtained in this study can be listed as follows: According to Durbin-Hausman Cointegration Test, there is a long-term relationship between variables. The results which obtained from the Common Correlated Effect (CCE) estimator indicate that an increase in the exchange rate has negative impact on exports and total sales, while an increase in added value created by the firms has positive effects on exports, domestic sales, total sales and profitability. Finally, it is observed that an increase in capital-labor ratio has positive effects on profitability. Keywords: Real Exchange Rate, Firm Performance, Panel Data Analysis. JEL Classification Codes: M19, F31, C23.
    Full-text · Article · Jan 2016
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    • "These findings motivate OPEC's interest to seek member nation economic success by investigating alternatives to the pricing of crude oil in US dollars. Exchange rate volatility in global trade creates uncertainty in pricing imports and exports (Rose, 2000), impacting profitability (Baum et al., 2001) and discourages or delays production and employment investment decisions (Belke and Gros, 2002). A solution against exchange rate volatility is a diversified risk currency basket, which serves as an instrument of stabilization (Horne and Martin, 1989) and as a monetary policy mechanism (Bird and Rajan, 2002) that may also serve a particular country's or organization's self-interest (Hochreiter et al., 2003). "
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    Preview · Article · Apr 2010 · Energy Policy
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    • "1 Jorion (1990), Amihud (1993), Bartov and Bodnar (1994), and Bartov et al. (1996) focusing on the US multinational firms, for example, find a negative effect of uncertainty and volatility on firm profitability. On the theoretical front, Shapiro (1974) and Dumas (1978) show a negative effect of exchange rate uncertainty and volatility on firm profitability, while Baum et al. (2001) point out an indeterminate effect of volatility on profit growth rates. "
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    ABSTRACT: Using semi-annual data from 1993 to 2003 for all publicly traded manufacturing firms in Turkey, this paper explores the impacts of macroeconomic uncertainty and external shocks on profitability of real sector firms in the presence of multiple investment options in both real and financial sectors. The paper argues that increasing availability and accessibility of investment opportunities in the financial markets help real sector firms sustain profit margins despite market rigidities, increasing goods market competition, or higher levels of risks. The empirical results based on dynamic panel estimations show that increasing macroeconomic uncertainty and volatility have a significantly negative effect on firm profitability. In contrast, increasing the share of financial investments in total assets is found to be reducing such negative effects at a statistically and economically significant level. Copyright © 2009 Blackwell Publishing Ltd.
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