European Financial and Accounting Journal 2021, 16(1):45-70 | DOI: 10.18267/j.efaj.248

The Impact of FX Exposure on the Firm’s Stock Market Return

Mariia Bondarenko1, Karel Brůna2
1 Prague University of Economics and Business, Faculty of Finance and Accounting, Department of Monetary Theory and Policy, W. Churchill sq. 4, 13é 67 Prague, Czech Republic .
2 Prague University of Economics and Business, Faculty of Finance and Accounting, Department of Monetary Theory and Policy, W. Churchill sq. 4, 13é 67 Prague, Czech Republic .

It is generally acknowledged that one of the risks faced by any company is FX risk, especially when the business operates internationally. For individual companies, exposure to FX risk results in different financial implications, stressing such parameters as the industry affiliation and the company’s size with respect to the level of FX risk exposure. In this paper we analyse how FX exposure of companies of different size and operating in industrial and service sectors affects their stock market returns. Using the panel regression with macroeconomic and companies’ specific factors for 208 European companies analysed over the period 2012–2018, we show that the link between changes in the exchange rate and the stock return is statistically significant and that medium-size companies as well as firms operating in the service sector of economy are more exposed to this impact.

Keywords: Stock return; Stock price; Exchange rate; FX exposure; FX risk.
JEL classification: F31, G12, G32

Published: June 25, 2021  Show citation

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Bondarenko, M., & Brůna, K. (2021). The Impact of FX Exposure on the Firm’s Stock Market Return. European Financial and Accounting Journal, 16(1), 45-70. doi: 10.18267/j.efaj.248
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