Foreign Exchange Exposure of Korean Firms

Ji-Seon Kim

doi:10.11644/KIEP.JEAI.2002.6.2.95

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East Asian Economic Review Vol. 6, No. 2, 2002. pp. 35-67.

DOI https://dx.doi.org/10.11644/KIEP.JEAI.2002.6.2.95

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Foreign Exchange Exposure of Korean Firms

Author
Ji-Seon Kim	Center for Good Corporate Governance, Korea kjs9714@cgcg.or.kr

EAER is an open access journal distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license.

Abstract

The purpose of this study is to examine the relationship between the movements of exchange rate and value of Korean firms, so-called foreign exchange rate exposure using newly devised model to find the strong evidence. I use weekly data on Korean Firms that are listed on Korea Stock Exchange (KSE) for the period from January 1997 to December 2000. I find that about 70% Korean Firms are actually exposed to Won-dollar exchange rate movement at 10% significance level and these results are substantially different from the previous empirical study where little statistical significance was found. In comparing the foreign exchange exposures with three different exchange rates, in Won-dollar and Won-yen exchange exposures, value of Korean firms is positively related to depreciation of Korean Won and negatively related to depreciation of Korean Won with Won-euro exchange exposure. With magnitude of three exposures, results can be interpreted that Dollar exposure seems to be the most significant among three foreign exchange exposures and Korean Firms' value is more sensitive to Won-dollar exchange rate. I also find that exchange exposure is strongly related to firm size and industry especially Electricity & Gas industry is most significantly related.

JEL classification: F31, F23, H32

Keywords

Foreign Exchange Exposure, Firm Size Exposure and Industry－Specific Exposure

Language

English

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