Exchange rate exposure and risk management: The case of Japanese exporting firms

Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu

Abstract

This paper investigates the relationship between Japanese firms' exposure to the exchange rate risk and their risk management. Following Dominguez (1998) and others, we first estimate the firms' exposure to the exchange rate risk by regressing their stock prices on the exchange rate and the market portfolio. We next investigate possible influences of various risk management measures on the firms' foreign exchange exposure. Risk management variables include financial and operational hedging, the invoice currency choice, and the price revision strategy (pass-through) of 227 listed firms in 2009, which were collected from a questionnaire survey of Japanese firms listed in the Tokyo Stock Exchange. Our main findings are as follows: First, firms with greater dependency on sales in foreign markets have greater foreign exchange exposure, judged by the market. Second, the higher the US dollar invoicing share, the greater the foreign exchange exposure is, which can be reduced by both financial and operational hedging. Third, yen invoicing reduces foreign exchange exposure. These findings indicate that Japanese firms use a combination of risk management tools to mitigate the degree of exchange rate risk.

Original languageEnglish
Pages (from-to)17-29
Number of pages13
JournalJournal of the Japanese and International Economies
Volume41
DOIs
StatePublished - 2016 Sep 1

Fingerprint

firm
rate of exchange
risk management
foreign exchange
Japanese
market
risk
price
stock exchange
currency
dollar
sales
questionnaire
tool
influence exertion
survey
strategy

Keywords

  • Exchange rate pass-through
  • Exchange rate risk management
  • F31
  • Financial hedge
  • G15
  • G32
  • Invoice currency
  • Operational hedge

ASJC Scopus subject areas

  • Economics and Econometrics
  • Finance
  • Political Science and International Relations

Cite this

Exchange rate exposure and risk management : The case of Japanese exporting firms. / Ito, Takatoshi; Koibuchi, Satoshi; Sato, Kiyotaka; Shimizu, Junko.

In: Journal of the Japanese and International Economies, Vol. 41, 01.09.2016, p. 17-29.

Research output: Contribution to journalArticle

Ito, Takatoshi; Koibuchi, Satoshi; Sato, Kiyotaka; Shimizu, Junko / Exchange rate exposure and risk management : The case of Japanese exporting firms.

In: Journal of the Japanese and International Economies, Vol. 41, 01.09.2016, p. 17-29.

Research output: Contribution to journalArticle

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