Abstract
This paper analyses the foreign exchange rate exposure of Hungarian firms and its determinants on the basis of corporate cash flows and stock prices. The analysis focuses on the HUF/EUR exchange rate using monthly data from 2000 - 2014, resp. 2003 - 2012 in case of cash flow analysis. Stock prices exposure analysis showed that significant number of these firms is exposed: 18.4 % of publicly listed companies were significantly exposed in period 2007 - 2014 which is significantly higher than in previous period. According to the cash flow analysis results, 34 % of firms are exposed, whilst 45.3 % of small firms are significantly exposed. The measuring of exchange rate risk and hedging is therefore crucial for reduction of the firms' uncertainty. Cross-sectional analysis suggests that the turnover and foreign sales are also important determinants of firms' exchange rate exposure.
Highlights
One of the central motivations for the euro creation was to eliminate exchange rate risk
The paper focused on the stock prices and cash flow analysis of exchange rate exposure of Hungarian firms
The stock returns of 39 companies were used to test for the presence of exchange rate exposure of firms quoted in Budapest Stock Exchange
Summary
One of the central motivations for the euro creation was to eliminate exchange rate risk. The existing literature at the industry or firm level finds mixed results of evidence of systematic exchange rate exposure and rarely concerns Central and Eastern European countries. This paper contributes to a gap of empirical findings of exchange rate volatility and its effects on firm value in the case of a transition economy. It offers a new perspective and provides new evidence on the foreign exchange rate exposure of broad sample of firms. The objective of this paper is to investigate the extent of exchange rate exposure in a sample of 39 companies listed in Budapest Stock Exchange during 2000 – 2014 on basis of stock prices and over a broad sample of 2 037 large, medium and small firms on the cash flow basis during 2003 - 2012
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