An Investigation on Exchange Rate Exposure of Taiwan Plastic Industry
Date Issued
2009
Date
2009
Author(s)
Liu, Weiy-hsiao
Abstract
Due to small domestic market size and lack of natural resources, Taiwan relies heavily on international trade activities. It’s absolutely out of question we can’t neglect the effect of exchange rate volatility on the profitability of businesses in Taiwan. Hence, there were lots of domestic literatures related to the exchange rate exposure and its determinants. Reviewing those theses, however, we found they leave two defects to be corrected. First, in the field of exchange rate exposure research, most industries which have high degrees of trade dependence were studied except for plastic industry. Second, most of past theses centered on stock price exposures to exchange rate volatility, which is what external investors really focus. However, what internal managers in companies care about are cash flow exposures instead of stock price exposures.o solve the problems mentioned above, we analyze the exchange rate exposures of firms in domestic plastic industry by the market-based method and the cash flow-based method. Further, we also researched the potential determinants of exchange rate exposures under the market-based method.mpirical results show that as to the 21 sample companies in this research, 90% of them exhibit significant and positive exchange rate exposures under the market-based method. Under cash flow-based method, 42.86% of them show significant exchange rate exposures, and more significant in the long run.esides, when analyzing the determinants of exchange rate exposures, the research results show significant, positive relationship between “exposure” and “firm size” as well as significant, negative relationship between “exposure” and “hedge with derivatives”. Unfortunately, when it comes to the determinants such as “quick ratio”, “interest rate coverage”, and “institutional investor ratio”, the results are all insignificant.his thesis may well provide the future domestic scholars studying exchange rate exposure a more complete analysis structure and more useful empirical results.
Subjects
plastic industry
exchange rate exposure
market-based method
cash flow-based method
distribution lag model
exchange rate exposure determinants
Type
thesis
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