Title

Determinants of time varying exchange rate exposure of corporate firms: a panel data evidence from Pakistan

Abstract/Description

In developing countries, lower level of development of derivative markets of foreign currency makes corporate firms sensitive to changes in exchange rate as the exchange rate risk is not properly hedged. In this paper we estimate the time varying exchange rate exposure of a sample of 132 Pakistani firms that are listed on the Pakistan Stock Exchange over the period from 2009 to 2017. Subsequently the paper explores the determinants of exchange rate exposure in a panel data framework to investigate firm specific and macroeconomic variables that can explain the variation in exchange rate exposure. It is found that more profitable firms have low absolute exposure and firms having high debt burden are more sensitive to exchange rate exposure. The results indicate that the time variation in the exchange rate are caused by the variation in business cycle conditions in both the local and global economy.

Track

Accounting, Law, and Finance

Session Number/Theme

Session 2A

Session Chair

Dr. Hilal Anwar Butt, Institute of Business Administration, Karachi

Session Discussant

Tahira Mariam Jaffery; Zaira Anees; Dr. Sharjeel Ahmed Hasnie; Dr. Falik Shear

Start Date/Time

23-6-2022 4:10 PM

End Date/Time

23-6-2022 4:30 PM

Location

Training Room 3, Marriott Hotel, Karachi

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Jun 23rd, 4:10 PM Jun 23rd, 4:30 PM

Determinants of time varying exchange rate exposure of corporate firms: a panel data evidence from Pakistan

Training Room 3, Marriott Hotel, Karachi

In developing countries, lower level of development of derivative markets of foreign currency makes corporate firms sensitive to changes in exchange rate as the exchange rate risk is not properly hedged. In this paper we estimate the time varying exchange rate exposure of a sample of 132 Pakistani firms that are listed on the Pakistan Stock Exchange over the period from 2009 to 2017. Subsequently the paper explores the determinants of exchange rate exposure in a panel data framework to investigate firm specific and macroeconomic variables that can explain the variation in exchange rate exposure. It is found that more profitable firms have low absolute exposure and firms having high debt burden are more sensitive to exchange rate exposure. The results indicate that the time variation in the exchange rate are caused by the variation in business cycle conditions in both the local and global economy.