Citation

Discussion Paper Details

Please find the details for DP15053 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: The Real Effects of Exchange Rate Risk on Corporate Investment: International Evidence

Author(s): Mark P Taylor, Zigan Wang and Qi Xu

Publication Date: July 2020

Keyword(s): corporate investment, Exchange rate and uncertainty

Programme Area(s): International Macroeconomics and Finance

Abstract: We empirically investigate the real effects of exchange rate risk on investment activities of international firms. We provide cross-country, firm-level evidence that greater unexpected currency volatility leads to significantly lower capital expenditures. The effect is stronger for countries with higher economic openness and for firms that do not use currency derivatives to hedge. We empirically test the implications of two potential mechanisms: Real options and precautionary savings. Our findings are consistent with both explanations. Two historical events in the FX markets strengthen the identification of our results.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15053

Bibliographic Reference

Taylor, M, Wang, Z and Xu, Q. 2020. 'The Real Effects of Exchange Rate Risk on Corporate Investment: International Evidence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15053