Exchange Rate Exposure and Firm Value: An Assessment of Domestic Versus Multinational Firms

Ihsan, Hajra; Rashid, Abdul; Naz, Anam

doi:10.35536/lje.2018.v23.i1.a3

Cited by 4 publications

(4 citation statements)

References 42 publications

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“…Our results are such as if the balance sheet channel of exchange rate is dominated by other channels in Pakistan; this is likely because Pakistani firms rely more on domestic credit market and their exposure to exchange rate fluctuations is low (Ihsan, Rashid and Naz, 2018) 20 . We also find that interest rate does not respond to asset prices ( Figure A1 in Appendix).…”

Section: Response Ofmentioning

confidence: 80%

The Role of Monetary Policy in Transmission of Asset Prices into Goods Prices

Mariyam

Malik

2020

JAEBS

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Monetary policy in the contemporary world reacts, through short term interest rate, to deviations of inflation rate and output from their respective targets, while asset prices are responded to the extent they contribute to these deviations. This practice significantly affects transmission of asset prices into goods prices, which has serious implications for income distribution. This paper sets the objectives of estimating transmission of asset prices into goods prices and the role of monetary policy in influencing this transmission. In this regard, the paper hypothesizes that inflation rate positively responds to asset prices and this response weakens if interest rate leans against the winds of inflation, output and asset prices. To test these hypotheses, we have estimated different specifications of vector autoregressive (VAR) model and impulse response functions have been found after identifying structural shocks. Data of Pakistan’s economy on inflation rate, large scale manufacturing index, interest rate and asset price index – comprising house prices, stock prices and exchange rate – are used for the time period 2000m01 to 2019m06. We find evidence in support of both hypotheses; asset price inflation positively transmits into goods price inflation and this transmission intensifies if interest rate does not respond to other variables in the model. Moreover, transmission of asset prices into inflation rate, as compared to output, is influenced more by monetary policy. Finally, we find that the transmission of exchange rate and house prices to inflation rate are very much affected by monetary policy while in case of stock prices the influence of policy is moderate.

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Section: Response Ofmentioning

confidence: 80%

The Role of Monetary Policy in Transmission of Asset Prices into Goods Prices

Mariyam

Malik

2020

JAEBS

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“…This heightened demand can drive the currency's exchange rate higher, resulting in appreciation compared to other currencies. Exchange rates impact Firm value via stock returns as an intervening variable, as shown by research from several authors, including (Elfiswandi et al, 2020); (Ihsan et al, 2018). Exchange rates have an effect on firm value via the stock market's returns, so it follows that: H6: Exchange Rates affect Firm Value through Stock Returns as an Intervening variable.…”

Section: Relationship Of Inflation To Firm Value Through Stock Return...mentioning

confidence: 92%

“…As a consequence, declining company performance can lead to a decrease in stock prices, which, in turn, diminishes the company's overall value. The result of a previous study (Estuti & Fauziyanti, 2018;Ihsan et al, 2018) shows that the Exchange Rate affects Firm Value. Therefore, it can be concluded:…”

Section: Relationship Of Inflation To Firm Valuementioning

confidence: 93%

Department of Management, Faculty of Business Economics, Universitas Muhammadiyah Jember

Satoto

2024

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The supply chain of mining businesses listed on the Indonesia Stock Exchange (IDX) has declined due to the significant impact brought about by the uncertainty of an increasingly complex world economic climate. This study aims to determine the relationship between interest rates, inflation, currency exchange rates, stock returns, and firm value. Structural Equation Modeling (SEM) analysis was conducted to decipher the data in this study. The research findings show that the mining industry in Indonesia is highly influenced by macroeconomic factors, especially interest rates, inflation, and exchange rates. The negative relationship between interest rates and inflation negatively affects stock returns and firm value. Meanwhile, it increased the rupiah's value positively and significantly influenced stock returns and business value. Higher stock returns can increase the value of mining companies listed on the Indonesia Stock Exchange (IDX).

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“…This objective requires consideration of organic relationships of multiple aspects of the firm while operating in an international environment. Foreign exchange risk is one such vital issue (Madura & Fox, 2011) that has become gradually more important in international financial management since the end of the fixed exchange rate regime in 1973 (Ihsan et al, 2018). The economic theory postulates that change in exchange rate not only affect the current profitability and the market value of the firms having revenues/costs/assets/liabilities in foreign currencies but also can influence the market expectations about future cash flows and consequently the firm value (Flota, 2014).…”

Section: Introductionmentioning

confidence: 99%

Modelling the dynamics of firm valuation: An assessment of impact of exchange rate fluctuations on firm value using system dynamics

Khan

Qureshi

2022

Syst Res Behav Sci

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Exchange rate volatility is a vital issue in international finance due to its effect on the value of the firm, depending on firm's exposure to the exchange rate risk. However, this impact is not clear in literature as evidence is mixed. This article analyses the impact of exchange rate fluctuations on firm value. A system dynamics‐based corporate planning model has been developed that incorporates the modules for financial and physical processes, firm valuation and exchange rate determination. Simulation results reveal that a stronger home currency leads to an increase in market price per share of the firm and vice versa. The results provide counter intuitive evidence on the impact of exchange rate on firm value and provide nonlinear feedback loop‐based explanation. The study fills the gap in literature by incorporating a systemic approach in the strategic planning process to assess the composite impact of parameter changes on key variables.

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Exchange Rate Exposure and Firm Value: An Assessment of Domestic Versus Multinational Firms

Cited by 4 publications

References 42 publications

The Role of Monetary Policy in Transmission of Asset Prices into Goods Prices

The Role of Monetary Policy in Transmission of Asset Prices into Goods Prices

Department of Management, Faculty of Business Economics, Universitas Muhammadiyah Jember

Modelling the dynamics of firm valuation: An assessment of impact of exchange rate fluctuations on firm value using system dynamics

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