This paper presents a new assessment of the exposure of European firms to exchange rate fluctuations which takes into account the potential common drivers of exchange rates and equity market conditions. Using monthly data for European firms from 1999 to 2011, we assess the impact of unexpected fluctuations in the USD, JPY, GBP and CHF against the Euro, and show that the proportion of firms subject to exchange rate risk is considerably larger when estimation accounts for potential common drivers and firm-specific factors than otherwise. Firm exposure to exchange rate risk is affected by the level of international involvement, industry, firm size and country of origin. European firms with largely domestic operations reveal the greatest vulnerability to unexpected exchange rate movements, suggesting an opportunity to improve risk management for these companies.

Item Type:	Refereed Article
Keywords:	exchange rate risk, firm value, European firms
Research Division:	Commerce, Management, Tourism and Services
Research Group:	Banking, finance and investment
Research Field:	Investment and risk management
Objective Division:	Commercial Services and Tourism
Objective Group:	Financial services
Objective Field:	Investment services (excl. superannuation)
UTAS Author:	Parlapiano, F (Dr Fabio Parlapiano)
UTAS Author:	Alexeev, V (Dr Vitali Alexeev)
UTAS Author:	Dungey, M (Professor Mardi Dungey)
ID Code:	101673
Year Published:	2017 (online first 2015)
Web of Science® Times Cited:	11
Deposited By:	TSBE
Deposited On:	2015-06-30
Last Modified:	2017-01-09
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