Economic exposure of emerging market firms

Abstract

Although foreign exchange risk inherits more severe exposures for emerging market firms, past empirical research addressing foreign exchange exposure is mainly concentrated on firms operating in developed economies. This paper examines the impact of exchange rate fluctuations on firm value at an emerging market through focusing on economic exposure of Turkish listed firms. The findings indicate that depreciation of Turkish lira against the euro, the US dollar and the basket currency significantly deteriorates firm value in a current month while significantly enhances firm value during the next month. When the overall impact of Turkish lira depreciation on the value of Turkish companies is considered, it is observed that the weakening of the home currency has a positive effect on firm’s value.