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2021 | OriginalPaper | Chapter

Exchange Rate Sensitivity of Firm Value: Evidence from Nonfinancial Firms Listed on Borsa Istanbul

Authors : İbrahim Ethem Güney, Abdullah Kazdal, Doruk Küçüksaraç, Muhammed Hasan Yılmaz

Published in: Handbook of Research on Emerging Theories, Models, and Applications of Financial Econometrics

Publisher: Springer International Publishing

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Abstract

This chapter attempts to quantify the effect of exchange rate on the value of nonfinancial firms listed on Borsa Istanbul. In the first part of the analysis, the regression results using firm-level data show that currency fluctuations tend to influence the stock returns of 44 firms out of 177 firms in the sample in a significant way with negative average foreign exchange (FX) sensitivity coefficient. The sectoral-level analysis indicates that sectors with net FX short position are also subject to higher FX sensitivity with respect to firm value. In the second part, firm-level determinants of FX sensitivity are investigated using quantile regression method. The estimation results indicate that the market value of firms with net FX position surplus tends to respond positively to the depreciation of Turkish lira against the US dollar across all quantiles. It is also observed that the degree of internationalization, firm size, profitability, and growth opportunities are significant determinants of stock market pricing of FX risk.

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For further discussion, see Doukas et al. (1999), Li et al. (2015), Agyei-Ampomah et al. (2012), Akay and Çifter (2014), and Erdoğan (2016).

Due to data limitations, the period before 2007 is excluded.

Stock returns are taken in gross forms in compliance with the gross return calculations for exchange rate and orthogonalized market index. Coefficients remain mostly unchanged when 2-year government bond yields are included in estimations.

For the calculation of return series of individual firms, exchange rate changes, and market return, daily data is collected as an initial step. Then, weekly return series are created by taking simple averages over the month and retrieving logarithmic changes.

The sample range for quantile regression estimations is shorter due to rolling regressions. Also, the data is annual as the balance sheet and income statement data obtained for creating explanatory variables are in annual frequency.

The quick ratio, which is also known as the acid test ratio, compares the total amount of cash, marketable securities, and accounts receivable to the amount of current liabilities.

It should be noted that in order to account for outliers due to misreporting, the explanatory variables above the 99th percentile on one side or above the 0.5th and 99.5 percentiles on both sides are winsorized.

Similar results are obtained when currency basket is used instead of the USD/TRY nominal exchange rate.

Similar results are obtained when currency basket is used instead of USD/TRY nominal exchange rate.

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