African Journal of
Business Management

  • Abbreviation: Afr. J. Bus. Manage.
  • Language: English
  • ISSN: 1993-8233
  • DOI: 10.5897/AJBM
  • Start Year: 2007
  • Published Articles: 4094

Full Length Research Paper

The impacts of unexpected changes in exchange rate on firms’ value: Evidence from a small open economy

Jian-Fa Li, Yih-Bey Lin* and Cheng-Yih Hong
Department of Finance, Chaoyang University of Technology, Taichung County 41349, Taiwan.
Email: [email protected]

  •  Accepted: 04 November 2010
  •  Published: 04 April 2011



This study examined the exposure of firms to exchange rate fluctuations by both employing the Generalized Autoregressive Conditional Heteroskedasticity Model (GARCH) and the Classical Linear Regression Model (CLRM). To uncover the sensitivity of our results in the presence of the financial crisis, the sample period was classified into two sub-periods in which included pre- and post- Asian financial crisis. Panel regression analysis was used to find the determinants of exchange rate exposure, such as firm size, export ratio, quick ratio and long-term debt ratio. The empirical findings in the present study were summarized as follows: It was positive and significant exposure of foreign exchange risk. It suggested that currency movements matter the firm’s value. The empirical results matched Taiwan as an export-oriented small open economy. Firms with a larger size, a higher quick ratio or a higher long-term debt ratio were inclined to have a lower exposure in exchange rate. However, the export ratio of a firm had little impacts on the firm’s exchange rate exposure.


Key words: Exchange rate exposure, Asian financial crisis, Generalized Autoregressive Conditional Heteroskedasticity Model, panel regression analysis.