A firm-specific analysis of the exchange-rate exposure of Dutch firms

Abe de Jong, Jeroen Ligterink, Victor Macrae

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28 Citations (Scopus)


We examine the relationship between exchange-rate changes and stock returns for a sample of Dutch firms over 1994-1998. We find that over 50 per cent of the firms are significantly exposed to exchange-rate risk. Furthermore, all firms with significant exchange-rate exposure benefit from a depreciation of the Dutch guilder relative to a trade-weighted currency index. This result confirms that firms in open economies, such as the Netherlands, exhibit significant exchange-rate exposure. We collect unique information on the most relevant individual currencies for each firm with respect to their influence on firm value. Our results indicate that the use of a trade-weighted currency index and the use of individual exchange rates are complements. We also measure the determinants of exchange-rate exposure. As expected, we find that firm size and the foreign sales ratio are significantly and positively related to exchange-rate exposure. In contrast with our hypothesis, off-balance hedging using derivatives has no significant effects. Finally, in line with theory, we find that exposure is significantly reduced through on-balance sheet hedging, i.e., through foreign loans and by producing in factories abroad.

Original languageEnglish
Pages (from-to)1-28
Number of pages28
JournalJournal of International Financial Management and Accounting
Issue number1
Publication statusPublished - 1 Feb 2006
Externally publishedYes

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