The Asian Exposure of U.S. Firms : Operational and Risk Management Strategies

This paper examines the Asian currency exposure of US firms with regard to their international operational and risk management strategies. We find that contemporaneous and lagged changes in real exchange rates have significant impacts on firm value for about 30% of the US firms with Asian operations. The effects of a strong dollar are heterogeneous, with both significantly positive and negative coefficients. The exchange exposure coefficients are then estimated as a function of international operational and risk management variables. A strong dollar has an adverse effect on firm value when the firm has a negative initial exposure position, and is related to exports and local sales activities of the firm. However, asset deployment in Asia raises the exposure in absolute terms regardless of initial exposure condition. Variables for hedging incentives explain exposure in both positive and negative exposure cases. Finally, a disaggregate study by country shows significant intra-regional differences, indicating the different ways in which the US firms used their Asian subsidiaries operationally