- E-ISSN2288-2766
- KCI
E-ISSN : 2288-2766
MNE’s Ability to Mitigate the FX Exposure : Subsidiary Network and Pass-through Ability
Abstract
Purpose - This paper tests the effect of the structure of manufacturing and marketing subsidiary network on FX exposure of Korean MNEs. Research design, data, methodology – This study utilizes a sample of 309 Korean MNEs constructed from database offered by KOTRA and KIS-VALUE. Results - As operational flexibility arising from having operations in multiple locations provides an option for firms to tackle FX exposure, greater breadth of manufacturing subsidiary network reduces FX exposure, and greater depth increases FX exposure. However, both the breadth and depth of marketing subsidiary network decrease FX exposure due to the firm’s higher level of market presence and knowledge to devise an appropriate marketing strategy that can buffer adverse exchange rate movement. Such an effect is intensified when MNE’s have FX exposure pass-through ability stemming from differentiated good. Conclusions – Empirical findings suggest that types and structure of Korean MNEs’ foreign subsidiary network are closely related to the level of FX exposure they are experiencing. Also, they can utilize marketing subsidiary network more efficiently when having a higher R&D intensity.
- keywords
- FX exposure, Subsidiary network, Operational hedge, Pass-through ability
Reference
Adler, M., & Dumas, B. (1984). Exposure to currency risk: definition and measurement. Financial Management, 13(2), 41-50.
Allayannis, G., & Ihrig, J. (2001). Exposure and markups. The Review of Financial Studies, 14(3), 805-835.
Allayannis, G., Ihrig, J., & Weston, J. P. (2001). Exchange-rate hedging: Financial versus operational strategies. The American Economic Review, 91(2), 391-395.
Allayannis, G., & Ofek, E. (2001). Exchange rate exposure, hedging, and the use of foreign currency derivatives. Journal of International Money and Finance, 20(2), 273-296.
Bartov, E., Bodnar, G. M., & Kaul, A. (1996). Exchange rate variability and the riskiness of U.S. multinational firms: Evidence from the breakdown of the Bretton Woods system. Journal of Financial Economics, 42(1), 105-132.
Bartram, S. M., Brown, G. W., & Minton, B. A. (2010). Resolving the exposure puzzle: The many facets of exchange rate exposure. Journal of Financial Economics, 95(2), 148-173.
Belderbos, R., & Zou, J. (2009). Real options and foreign affiliate divestments: A portfolio perspective. Journal of International Business Studies, 40(4), 600-620.
Bodnar, G. M., Dumas, B., & Marston, R. C. (2002). Pass-through and exposure. The Journal of Finance, 57(1), 199-231.
Bodnar, G. M., & Gentry, W. M. (1993). Exchange rate exposure and industry characteristics: evidence from Canada, Japan, and the USA. Journal of International Money and Finance, 12(1), 29-45.
Bodnar, G. M., Hayt, G. S., & Marston, R. C. (1998). 1998 Wharton survey of financial risk management by US non-financial firms. Financial Management, 27(4), 70-91.
Brown, G. W. (2001). Managing foreign exchange risk with derivatives. Journal of Financial Economics, 60(2), 401-448.
Cheung, Y. W., & Westermann, F. (2017). International Currency Exposure (Eds.). MIT Press.
Chow, E. H., Lee, W. Y., & Solt, M. E. (1997). The exchange-rate risk exposure of asset returns. Journal of Business, 70(1), 105-123.
Chung, C. C., Lee, S. H., Beamish, P. W., & Isobe, T. (2010). Subsidiary expansion/contraction during times of economic crisis. Journal of International Business Studies, 41(3), 500-516.
Clark, T., Kotabe, M., & Rajaratnam, D. (1999). Exchange rate pass-through and international pricing strategy: A conceptual framework and research propositions. Journal of International Business Studies, 30(2), 249-268.
Dominguez, K. M. E., & Tesar, L. L. (2006). Exchange rate exposure. Journal of International Economics, 68(1), 188-218.
Dornbusch, R. (1987). Exchange rates and prices. The American Economic Review, 77(1), 93-106.
Faff, R. W., & Marshall, A. (2005). International evidence on the determinants of foreign exchange rate exposure of multinational corporations. Journal of International Business Studies, 36(5), 539-558.
Feenstra, R. C., Gagnon, J. E., & Knetter, M. M. (1996). Market share and exchange rate pass-through in world automobile trade. Journal of International Economics, 40(1-2), 187-207.
He, J., & Ng, L. K. (1998). The foreign exchange exposure of Japanese multinational corporations. The Journal of Finance, 53(2), 733-753.
Hutson, E., & Stevenson, S. (2009). Openness, hedging incentives and foreign exchange exposure: A firm-level multi-country study. Journal of International Business Studies, 41(1), 105-122.
Jiawen, Y. (1997). Exchange rate pass-through in U.S. manufacturing industries. The Review of Economics and Statistics, 79(1), 95-104.
Jorion, P. (1990). The exchange-rate exposure of US multinationals. Journal of Business, 63(3), 331-345.
Kogut, B., & Kulatilaka, N. (1994). Operating flexibility, global manufacturing, and the option value of a multinational network. Management Science, 40(1), 123-139.
Krapl, A. A. (2017). Asymmetric foreign exchange cash flow exposure: A firm-level analysis. Journal of Corporate Finance, 44(C), 48-72.
Lee, S.-H., & Makhija, M. (2008). The effect of domestic uncertainty on the real options value of international investments. Journal of International Business Studies, 40(3), 405-420.
Marshall, A. P. (2000). Foreign exchange risk management in UK, USA and Asia Pacific multinational companies. Journal of Multinational Financial Management, 10(2), 185-211.
Miller, K. D., & Reuer, J. J. (1998). Firm strategy and economic exposure to foreign exchange rate movements. Journal of International Business Studies, 29(3), 493-513.
Pantzalis, C., Simkins, B. J., & Laux, P. A. (2001). Operational hedges and the foreign exchange exposure of U.S. multinational corporations. Journal of International Business Studies, 32(4), 793-812.
Trigeorgis, L., & Reuer, J. J. (2017). Real options theory in strategic management. Strategic Management Journal, 38(1), 42-63.
Williamson, R. (2001). Exchange rate exposure and competition: evidence from the automotive industry. Journal of Financial Economics, 59(3), 441-475.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations
