Globalization, crisis and forex exposure: Indian evidence

Abstract

Globalization and financial sector reforms in India have ushered in a sea change in the financial architecture of the economy. The same is manifested in her capital markets including the stock markets and her foreign exchange markets as well. With this backdrop, the present study has been initiated to capture the foreign exposure effect at firm and industry level around the two difference crisis period, i.e. Dot-Com crisis in 2001 and Sub-Prime crisis in 2008 with respect to India. Whether and how the nature and magnitude of such exposure depends on the movements and particularly on the crises in the economy; such exploration is important because, if the nature and magnitude of such exposure depends on the cycles of the economy; or it changes as the economy approaches a peak, plunges into a crisis and then recovers, and if the nature of such change differs from one cycle to another, additional risks may be imparted on the economy. Overall, the results of this study provide enough evidence that exchange rate fluctuations affects firm value in Indian context which is in line with theory. Moreover, the study concludes that exchange rate exposure on firms' value depends on nature of the crisis.