The Impact Of Real Effective Exchange Rate Changes On Firms' Performance In Manufacturing Sector

There are few studies on the impact of RMB exchange rate movements on economical entity.As the world's second largest economy after the United States,and has the largest exports for many years,China's enterprises must be affected profoundly by RMB exchange rate movements.Meanwhile,the government and the community are concerned about how economical entity deal with the increasing exchange rate risk.Of all industries,manufacturing is undoubtedly among the biggest victims of the exchange rate risk because of its high degree of openness and dependence on foreign trade.So it has a strong theoretical and practical significance to study the influence of exchange rate movements by taking the manufacturing firms' performance as the representative.Firstly,this paper explored through what channels and mechanisms exchange rate affects economical entity,such as exchange rate pass-through effect and pricing-to-market theory(PTM).Secondly,using each industries' import and export share of trade partners as the weight,the paper constructed RMB real effective exchange rate(reer),which is called industries' real effective exchange rate.It is more effective to reflect different industries' and firms' performance to external competition environment and pressure than the exchange rate at national level.Besides,manufacturing industries are classified according to the classification,so that enterprises and industry characteristics can be controlled and find the differences in manufacturing sub-sectors.Finally,through the empirical analysis of data of958 manufacturing publicly listed firms in Shanghai and Shenzhen stock market,the paper studied the impact of RMB industries' real effective exchange rate movements on the performance of Chinese manufacturing publicly listed firms over the period 2006-2014 usingmixed effects model and panel VAR model.The paper estimated the effect of exchange rate to firms' performance from the microscopic aspect.The results of empirical analysis show that industries' real exchange rate movements is positively correlated with the performance of listed manufacturing firms,which agrees with the literature of "contractionary devaluations".However,the impact varies across different firms' and industries' characteristics.In particular,the impact depends upon firms' markup and industry concentration and so on.The appreciation of RMB exchange rate is mainly affected by firms' markup capacity which brings low performance.It may also be affected by the asset intensity which brings high performance.Above all,the performance of firms with different industries concentration degree are different faced exchange rate movements.It is necessary to consider the industry concentration factor in studies.It can be seen that when studies the impact of exchange rate changes,the heterogeneity of firms and industries should be taken into account.From the perspective of policy makers and economical entity,these studies have important guiding significance.As an important medium and policy instrument in the open economic environment,exchange rate can affect the sales and performance of manufacturing enterprises and the development of economical entity,thus affect the balance of payments in a country.Therefore,it is necessary to evaluate the impact of exchange rate movements on the performance of manufacturing firms and to analyze the mechanism of exchange rate movements comprehensively,systematically and deeply.It is undoubtedly important in theoretical and practical value to put forward feasible policy suggestions for manufacturing firms to handle and prevent exchange rate risk.Policy makers should consider the firms and industries heterogeneity,so that the implementation of the policy is beneficial to more participant.Economical entity should consider their own scale,market status and other actual situation when handle the impact of exchange rate movements.