Measuring and Managing the Foreign Exchange Exposure of Chinese Companies

Abstract

This paper explores the sensitivity of Chinese stock returns to changes in trade-weighted indexes of the renminbi (RMB) and the currencies of China's trading partners from 1999 to 2003. It analyses this exposure elasticity cross-sectionally using accounting variables to proxy for size and costs of financial distress. It finds that internationally oriented Chinese companies have experienced exchange exposure particularly against the yen. It also finds that, against a trade-weighted index, there is no empirical evidence that Chinese firms are engaged in hedging activities. However, when exposures are measured in yen terms, it finds that Chinese firms, particularly exporters, engage in active currency hedging.

Citation

Schena, P.J. (2006), "Measuring and Managing the Foreign Exchange Exposure of Chinese Companies", Choi, J.J. and Click, R.W. (Ed.) Value Creation in Multinational Enterprise (International Finance Review, Vol. 7), Emerald Group Publishing Limited, Leeds, pp. 285-306. https://doi.org/10.1016/S1569-3767(06)07012-9