PhD Thesis Title: Corporate foreign exchange exposures in emerging markets.
Supervisor: Dr. Elaine Hutson
External Examiner: Professor Simon Stevenson, Henley Business School
This study investigates the foreign exchange exposure of firms in emerging markets. Specifically, three research questions are examined. (i) Taking China as one of the most important emerging markets, I examine the foreign exchange rate exposure of Chinese banks around the financial crisis. Using daily equity price data, I find that Chinese banks are highly exposed to exchange rate movements. Sub-period analyses suggest that they were even more exposed in the post-crisis period, when the Chinese exchange rate regime shifted to a de facto dollar peg from a managed float. Further analyses of the nature of the banks’ exposure suggest that indirect exposure dominates. (ii) Inspired by findings in the first study – that the exchange rate sensitivities of the twin shares of dual-listed banks are different – I investigate whether this is the case for all Chinese firms that are dual-listed in mainland markets and in Hong Kong. The results confirm that significant differences exist between the exchange rate sensitivities of A- and H-shares – not only in magnitude, but also in sign. I suggest that the Chinese mainland stock market is not as efficient as the Hong Kong stock market, and demonstrate that this can be explained by “hot money” inflows, and by optimistic investor sentiment amongst Chinese investors. (iii) Using a sample of 1,523 firms from 20 emerging markets, I examine the issue of foreign exchange exposure under different exchange rate arrangements. The findings suggest that exchange rate regimes are an important determinant of emerging market firms’ foreign exchange exposure; non-floating exchange rate regimes are associated with higher firm-level exposure than flexible regimes.