The impact of exchange rate movements on firm value in visegrad countries

Abstract

Company's involvement in global activities through international trade is the primary source of their foreign exchange exposure. Many empirical studies suggest the negative impact of uncertainty about the development of the exchange rate on cash flow and profitability of companies, and thus their market values. Some economic studies show that foreign revenues are positively correlated with the exchange rate exposure and in a short period, currency depreciation negatively affects the market value of listed companies. On the other hand, there are studies that show no statistically significant links between the value of the companies and exchange rates. The aim of this paper is to evaluate the effect of exchange rates on the value of companies listed on stock exchanges in the Visegrad countries. Paper applies Jorion's model and panel data regression for the sample period 2002 - 2016. Estimations for the whole period revealed negative relationship between exchange rate and value of stock companies. The highest exposure is observed in case of Hungary and Czechia. Positive tendency can be seen in comparison of pre-crisis and post-crisis period. Except the case of Hungary, all markets showed decreased exchange rate exposure in time.