6. Exchange rate exposure of Central and Eastern European exporting firms 117
6. Exchange rate exposure of Central and Eastern European exporting firms78 6.1 Introduction The exchange rate exposure of firms, i.e. the sensitivity of firms’ stock returns to fluctuations in foreign exchange rates, has been widely discussed since the end of the Bretton Woods system. Theoretical research, such as e.g. by Bodnar et al. (2002), underpins its importance for a firm’s value by identifying various channels through which exchange rate shocks are assumed to affect a firm’s profitability. Hence, from this perspective, a firm’s foreign exchange exposure should be thought relevant not only for risk management decisions of corporate managers, but also for international investors who seek to hedge their portfolio. Finally, it should also be of interest for policy makers who have to decide about the appropriate exchange rate arrangement for a country. However, the empirical evidence on the theoretically suggested relevance of the exposure is mixed at best (Bodnar and Wong, 2003, He and Ng, 1998, see also Muller and Verschoor, 2006a). Our study sheds light on the exchange rate exposure of exporting firms in the four transition markets Russia, Czech Republic, Hungary, and Poland. Transition markets have been least focused for this analysis so far. Most of empirical work is on Western industrialized economies (see e.g. Chamberlain et al., 1997, Glaum, 2000), where the exposure is found to be rather modest. However, empirical results suggest that exchange rate exposure seems to be higher in emerging economies: Kiymaz (2003) for example finds that the comparatively high share of 50%...
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