Critical Finance Review > Vol 7 > Issue 1

The Impact of Currency Risk on US MNCs: New Evidence From Returns and Cross-Border Investment Around Currency Crises

Kathryn Dewenter, Foster School of Business, University of Washington, USA, dewe@uw.edu Catherine Schrand, The Wharton School, University of Pennsylvania, USA, schrand@wharton.upenn.edu Clare Wang, Tippie College of Business, University of Iowa, USA, clare-wang@uiowa.edu
 
Suggested Citation
Kathryn Dewenter, Catherine Schrand and Clare Wang (2018), "The Impact of Currency Risk on US MNCs: New Evidence From Returns and Cross-Border Investment Around Currency Crises", Critical Finance Review: Vol. 7: No. 1, pp 1-53. http://dx.doi.org/10.1561/104.00000044

Published: 10 Jul 2018
© 2018 Kathryn Dewenter, Catherine Schrand, and Clare Wang
 
Subjects
 
Keywords
F21G34
Currency riskCurrency exposureCross-border investment
 

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In this article:
1. Overview of Setting and Sample
2. Regime Shift Announcement Date Event Study
3. Tests Using Cross-Border Investment Activity
4. Conclusion
Appendix A. Dating the Stages of the Currency Crises
Appendix B. Summary of Control Variables
References
In Memory of Kathryn

Abstract

This paper provides evidence on the valuation implications of currency risk. We analyze whether increases in currency risk for US multinational corporations (MNCs) following shifts from fixed to floating currency regimes in 23 countries led to increases in currency exposure and changes in cross-border investment decisions. To identify the effects, we use a difference-in-differences design that exploits the larger change in risk for currencies tied to the dollar during the fixed regime than for non-dollar-linked currencies. We conclude that the net exposure to currency risk is significant for US MNCs. However, factors other than currency risk such as strategic considerations are of first-order importance for firms’ cross-border investment decisions.

DOI:10.1561/104.00000044