Empirical Studies On Foreign Exchange Exposure Of Chinese Firms

This paper introduces the theory and empirical studies of foreign exchange exposure. In 1984 Adler-Dumas present a model that think of the exposure from the investors' views. This model is convenient for compare among the big scale sample. Subsequent researchers pointed out some shortcomings and mended this model. They appended the market return in the model and use the different return horizons data to investigate the firms' exposure. Some researcher found that the industry affiliation, firm size, foreign sales impose important effects on firms' exposure. But prior researches are contradiction.Summarizing the conclusions of prior researchers, this paper investigate Chinese firms' exchange exposure making use of the mended Adler-Dumas model including the market portfolio return and several single exchange rates. While estimating the exposure elasticity of Chinese firms, I take into account the effect of time lag, interval and different return horizons.And I find that the percentage of firms that have significant foreign exchange exposure is very large. It is very popular that the small firms and firms that trade abroad are sensitive to exchange rate fluctuation. Whether a firm trades abroad looks significant to firm's exposure. I can find some characteristics related to firm's exposure, but it is difficult to confirm the characteristics to most firms. According to expectation, the firms' exposure is very sensitive to exchange rate fluctuation during the Asian Crisis period.I can conclude that Chinese firms don't attach importance to the exchange rate risk and the exposure management ability is weak. So this paper gives some advice about exposure management.