Abstract
Through an analysis of over 4,000 multinational firms with foreign exchange (FX) exposures in 44 countries over a 30-year period to 2017, we provide cross-country evidence that greater firm-level unexpected FX 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 driving mechanisms: real options and precautionary savings. Our findings are consistent with both explanations. Two groups of historical events in the FX markets strengthen the identification of our results.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.