Exchange rate exposure of Latin American firms: Empirical evidence

• Published in: Journal of multinational financial management Vol. 51; pp. 80 - 97
• Main Authors: Santillán-Salgado, Roberto J., Núñez-Mora, José Antonio, Aggarwal, Raj, Escobar-Saldivar, Luis Jacob
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2019
• Subjects: Emerging markets; Foreign exchange rate exposure; International finance; Latin America; Stock market valuation; C5; F390; Foreign exchange rate exposure; Emerging markets; Stock market valuation; G320; F310; International finance; Latin America
• ISSN: 1042-444X; 1873-1309
• DOI: 10.1016/j.mulfin.2019.03.001

•Measures currency depreciation effects on a large sample of Latin American firms.•Makes detailed statistical and economic analyses of the significance of the results.•Reveals the absolute and relative exchange rate exposure of the sample firms. We study the exchange rate exposure of 776 listed Latin American firms from Argentina, Brazil, Chile, Colombia, Mexico and Peru, during 2009-2016. Regressing stock returns with domestic exchange rate changes and stock market returns as explanatory and control variables, respectively, and correcting for Classical Linear Regression assumptions violations, leaving aside non-significant regressions, the narrowed sample includes 139 regressions. The results confirm that for all countries except Colombia, and for all economic sectors considered, average exchange rate coefficients are negative, highly statistically significant, and economically significant. Additional Panel Data Analysis tests confirm these findings. Published studies on Latin American firms’ currency exposure have not used a sophisticated methodology nor applied it to as large a set of firms as has been done here. Our results suggest that Latin American firms are mostly domestic in their businesses, providing important guidance for economic development policies.