international evidence on the determinants of foreign exchange rate exposure of multinational corporations in this paper we explore some of the potential determinants of foreign exchange fx exposure and firm value we contribute to previous research on stock returns and firm value as we have access to a unique survey database and can include as determinants in our empirical analysis the objectives and emphasis on risk management as well as considering previous factors including the nature of the business environment we can also examine any regional influences as our sample includes uk us and asia pacific multinational companies mncs as predicted by theory we find some evidence that mncs with greater foreign operations have a larger magnitude of fx exposure however our proxy for the emphasis of fx management does not have the predicted negative association with the magnitude of fx indicating that managers may focus on short term cash flows in their fx management rather than firm value with regard to the potentially differential regional role of our variables a range of interesting results is found arguably in our most notable such finding we see that the contribution of overseas business to total revenues has no association with the magnitude of fx exposure for us mncs it has a positive role for uk mncs consistent with theory and a negative role for asia pacific mncs which could be explained by macroeconomic and or financial characteristics of the mncs in the sample

issue costs in the eurobond market the effects of market integration this study compares the issuance costs of eurobonds before and after the completion of the economic and monetary union emu in 2002 we find that the introduction of the euro has significantly reduced the issue cost of euro denominated bonds compared to bonds denominated in the legacy currencies the reduction in issue cost is not due to a decrease in underwriter compensation but rather to the elimination of underpricing the difference between the market price after trading commences and the offering price underwriter fee has declined substantially after the completion of the emu but this decline has been offset by an increase in underwriter spread the difference between the offering price and the guaranteed price to the issuer leaving total underwriter compensation unchanged the emu is also associated with significant reductions in bond maturity and syndicate size consistent with its expected effects on liquidity and issue costs in the eurobond market

the finance growth nexus evidence from bank branch deregulation this paper provides evidence that financial markets can directly affect economic growth by studying the relaxation of bank branch restrictions in the united states we find that the rates of real per capita growth in income and output increase significantly following intrastate branch reform we also argue that the observed changes in growth are the result of changes in the banking system improvements in the quality of bank lending not increased volume of bank lending appear to be responsible for faster growth

competitive equilibrium in the credit market under asymmetric information abstract we study a competitive credit market equilibrium in which all agents are risk neutral and lenders a priori unaware of borrowers default probabilities admissible credit contracts are characterized by the credit granting probability the loan quantity the loan interest rate and the collateral required the principal result is that in equilibrium lower risk borrowers pay higher interest rates than higher risk borrowers moreover the lower risk borrowers get more credit in equilibrium than they would with full information no credit is rationed and collateral requirements are higher for the lower risk borrowers

crossing the lines the conditional relation between exchange rate exposure and stock returns in emerging and developed markets this paper examines the importance of exchange rate exposure in the return generating process for a large sample of non financial firms from 37 countries we argue that the effect of exchange rate exposure on stock returns is conditional and show evidence of a significant return impact to firm level currency exposures when conditioning on the exchange rate change we further show that the realized return to exposure is directly related to the size and sign of the exchange rate change suggesting fluctuations in exchange rates as a source of time variation in currency return premia for the entire sample the return impact ranges from 1 2 to 3 3 per unit of currency exposure and it is larger for firms in emerging markets compared to developed markets overall the results indicate that foreign exchange rate exposure estimates are economically meaningful despite the fact that individual time series results are noisy and many exposures are not statistically significant and that exchange rate exposure plays an important role in generating cross sectional return variation moreover we show that the relation between exchange rate exposure and stock returns is more consistent with a cash flow effect than a discount rate effect

linear and nonlinear foreign exchange rate exposures of german nonfinancial corporations this paper investigates whether the low significance of the impact of foreign exchange rate risk on firm value reported in previous studies can be explained by the fact that only the linear exposure component has been estimated or that exchange rate indices were used for a comprehensive sample of german firms empirical evidence is presented for the existence of significant linear and nonlinear exposures which can be identified for bilateral as well as multilateral foreign exchange rates the percentage of foreign sales measures of firm liquidity and industry sectors are significant determinants of the exposure

credit market failure intervention do government sponsored small business credit programs enrich poorer areas using local market employment rates as our measure of economic performance we find a positive and significant correlation between the average annual level of employment in a local market and the level of sba guaranteed lending in that local market furthermore the intensity of this correlation is much larger in low income markets indeed our results suggest that this correlation is positive and significant only in low income markets this result has important implications for public policy in general and sba guaranteed lending in particular

the value of corporate risk management we model and estimate the value of corporate risk management we show how risk management can add value when revenues and costs are nonlinearly related to prices and estimate the model by regressing quarterly firm sales and costs on the second and higher moments of output and input prices for a sample of 34 oil refiners we find that hedging concave revenues and leaving concave costs exposed each represent between 2 and 3 of firm value we validate our approach by regressing tobin s q on the estimated value and level of risk management and find results consistent with the model

factors influencing take up rates on the loan guarantee scheme this paper uses time series analysis to model explicitly the take up rate of the uk government s loan guarantee scheme over the 1980s in doing so we consider the rationale for the scheme in the context of empirical and theoretical research into the financing of small businesses and in particular the nature of the small firm bank relationship to begin we discuss the history and evolution of the scheme from its inception in 1981 a theoretical model is then outlined in which lgs funds are used to maximise the utility of capital constrained entrepreneurs

price discrimination by u s and german exporters the insensitivity of the u s trade balance to the sharp depreciation of the dollar in the past three years has revived interest in the relationship between exchange rates and the trade balance a central issue in most analyses of the relation between the current account and the exchange rate concerns the price adjustment process the simple integrated competitive market model predicts that local currency prices should change in proportion to the nominal exchange rate for a country too small to influence world prices the relationship between local currency import prices and exchange rates has been referred to as the pass through relationship in the empirical literature in international economics if the proportional relationship between import prices and exchange rates holds pass through is said to be complete accounts of recent u s experience cite the failure of dollar prices of imported goods to rise in proportion to exchange rates i e incomplete pass through as an important factor in explaining the persistence of the trade deficit unfortunately observations on pass through alone provide limited insight into the behavior of markets since incomplete pass through is consistent with at least two fundamentally different paradigms one is the standard competitive model of trade in which the law of one price holds but exchange rate fluctuations are associated with large changes in import demand due to other factors for example if dollar appreciation is correlated with increases in world demand and industry marginal cost is increasing then pass through will be less than complete the other is an imperfectly competitive model in which exporters are capable of price discriminating across destination markets a phenomenon paul krugman 1987 has labeled pricing to market in this model incomplete pass through is typically associated with fluctuations in the markup of price over marginal cost on exports 2 these fluctuations in markups are believed to be countryspecific they do not reflect the behavior of prices to other export destinations both models are plausible explanations of recent u s experience unfortunately it is impossible to distinguish between these competing models using only information on import prices and exchange rates for a single country in order to distinguish between the competing models an empirical analysis of goods prices and exchange rates must be capable of measuring either marginal cost or the markup over marginal cost either of these tasks poses formidable empirical problems much of the empirical literature in industrial organization has been concerned with precisely these issues since markups are an important measure of the competitiveness of industries

the response of multinationals foreign exchange rate exposure to macroeconomic news abstract we use intraday data to estimate the daily foreign exchange exposure of u s multinationals and show that macroeconomic news affects these firms foreign exchange exposure news creates a substantial shift in the joint distribution of stock and exchange rate returns that has both a transitory and a persistent component for example a positive domestic demand surprise as reflected in higher than expected nonfarm payroll increases the value of the low exposure domestic activities and results in a persistent decrease in foreign exchange exposure

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

exchange rate exposure and industry characteristics evidence from canada japan and the usa abstract this paper examines industry level exchange rate exposures for canada japan and the usa measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns some industries in all three countries display significant exposures moreover for each country the exchange rate is important for explaining industry returns at the economy wide level to explore whether exchange rate exposures are systematically linked to the activities of the industries we model exposure as a function of industry characteristics for all three countries the relation between exposure and industry characteristics is broadly consistent with economic theory jel f3

corporate financial policies and performance around currency crises this paper studies firm level leverage and performance measures before and after a currency crisis using data from 17 countries we show that prior to a crisis companies that expect to benefit from currency depreciations increase their leverage more than companies that are expected to be harmed by the depreciation profitability and financial fragility ratios display consistent patterns we provide evidence that the asian crisis is different from the previous european and latin american ones in asia all firms become more fragile after the crisis and their profitability declines and leverage increases further whereas elsewhere there are clear signs of recovery after a crisis occurs

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

resolving the exposure puzzle the many facets of exchange rate exposure theory predicts sizeable exchange rate fx exposure for many firms however empirical research has not documented such exposures to examine this discrepancy we extend prior theoretical results to model a global firm s fx exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges for a typical sample firm pass through and operational hedging each reduce exposure by 10 15 financial hedging with foreign debt and to a lesser extent fx derivatives decreases exposure by about 40 the combination of these factors reduces fx exposures to observed levels

loan guarantees costs of default and benefits to small firms abstract governments of most countries seek to encourage small and medium sized enterprise sme growth and the job creation that many believe is fostered by such growth substantive growth usually requires expansion capital it is often perceived that compared with larger firms smes face disproportionately less access to the debt capital they need for start up growth and survival consequently governments and trade associations have often intervened in credit markets by taking on the role of guarantor of loans that financial institutions advance to smes for example the small business administration in the united states provides guarantees of loans made by banks to qualifying small firms similar schemes are in effect in among other countries canada japan the u k korea and germany trade associations take on such roles in france spain and other nations loans that support the expansion of small enterprises may convey significant benefits to the borrowing firms and through job creation and retention to the rest of society however to the extent that some borrowers are unable to meet the repayment obligations of their debt guarantors also face material real costs of honoring their guarantee to the lenders loan guarantee programs are designed in a variety of ways often these programs do not appear to reflect guidance from economic theory or experience this paper draws on empirical evidence to compare costs with benefits in addition it uses the results and economic theory to provide some guidance for the design of loan guarantee programs finally the study shows that loan guarantee programs can be an effective means of supporting start up growth and survival of new and risky enterprises the work finds that substantial total and incremental job creation may be attributed to the canadian loan guarantee program the paper reviews previous attempts to conduct cost benefit analyses of loan guarantee programs it finds wide variation internationally in default rates published data suggests default rates vary from less than 5 germany to more than 40 u k the empirical analysis reported here focuses on the canadian implementation of loan guarantees the small business loans act sbla findings include 1 loan guarantees granted under the terms of the sbla provide an extremely efficient means of job creation with very low estimated costs per job 2 default rates are higher for newer firms increase with the amount of funds borrowed and vary widely by sector borrowers in the retail and accommodation and food and beverage sectors were significantly more likely to default than borrowers in other sectors and 3 the widening eligibility to larger firms and to larger loans may not be well advised and is inconsistent with the goals of the program moreover reducing the loan ceiling would arguably discourage fraudulent applications while servicing those smes most in need of early stage capital in addition analysis of the lenders motives suggests that default rates on the portfolio of guaranteed loans and therefore the costs of honoring guarantees are particularly sensitive to the level of the guarantee small reductions in the level of the guarantee for example guaranteeing 80 of principal and accrued interest instead of 85 could lead to substantial reductions in default rates debate persists in economic theory about whether or not government intervention in the credit market is warranted in spite of the findings that loan guarantees seem to make positive contributions further analysis of these issues is advised

is the growth of small firms constrained by internal finance this paper examines the long standing theory that the growth of small firms is often constrained by the quantity of internal finance under plausible assumptions when financing constraints are binding an additional dollar of internal finance should generate slightly more than an additional dollar of growth in assets this quantitative prediction should not hold for the relatively small number of firms which access external equity we test these predictions with a panel of more than 1 600 small firms and find that the growth of most firms is constrained by internal finance our results have implications for several different research literatures including models of firm growth

the effects of industry structure on economic exposure abstract a firm is subject to economic exposure if changes in exchange rates affect the firm s value as measured by the present value of its future cash flows this paper shows that in many forms of competition including the most commonly studied case of monopoly the economic exposure of an exporting firm is simply proportional to the firm s net revenues based in foreign currency this simple result breaks down under some but not all forms of competition between the exporting firm and foreign firms in that case the exporting firm needs to know about the price elasticity of its product demand and its marginal cost in order to assess its exposure to exchange rates the key determinant of economic exposure therefore is the competitive structure of the industry in which a firm operates

the use of foreign currency derivatives corporate governance and firm value around the world abstract this paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty nine countries with significant exchange rate exposure derivatives can be used for managers self interest for hedging or for speculative purposes we hypothesize that investors can appeal to a firm s internal firm level and external country level corporate governance to draw inferences on a firm s motive behind the use of derivatives since well governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers self interest consistent with this explanation we find strong evidence that the use of currency derivatives for firms that have strong internal firm level or external country level governance is associated with a significant value premium

foreign exchange exposure of us tourism related firms abstract to date literature on foreign exchange risk has paid a particular attention to multinationals in trade related industries the tourism sector is also sensitive to the exchange rates between travelers home countries and their destinations suspecting that the exposure of domestic tourism related firms to foreign exchange risk results from price elasticity of demand the current study tested the cash flow exposure of sample firms accounting for nonlinearity asymmetry and lagged effects as a result a significant percentage 78 of domestic tourism related firms was found to have significant foreign exchange exposure this study also found that exchange rate exposure for tourism related firms was nonlinear asymmetric and lagged the evidence implied that several tourism related firms are passive regarding their exposure and may face financial burdens caused by demand fluctuations implications and suggestions are presented along with the findings of the study

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

the effect of domestic uncertainty on the real options value of international investments scholars have noted that international investments have the potential to provide firms with real options value under uncertainty to assess this issue prior studies have tended to focus primarily on exchange rate volatility although multinational firms face other types of uncertainty as well including those stemming from their domestic operating environment the role of such uncertainty for firms flexibility needs has not been previously considered in this study we compare the influence of both domestic economic uncertainty and exchange rate uncertainty on the real option value of international investments of korean firms over 16 years of varying uncertainty we find evidence that an international investment network characterized by greater breadth and lower depth is associated with higher firm value under domestic economic uncertainty exchange rate uncertainty however was not found to play a role in firms need for flexibility the results suggest that firms are able to hedge exchange rate uncertainty by using mechanisms such as forward contracts or derivatives thus potentially reducing the impact of this type of uncertainty on their operations

is the small firms loan guarantee scheme hazardous for banks or helpful to small business loan guarantee schemes are an integral part of sme policy in both developed and developing countries yet little has been done to evaluate such programmes particularly in terms of their ability to correct for capital market imperfections this paper uses individual loan data from some 42 000 uk sflgs backed debt contracts to empirically test the default specification outlined in the seminal credit rationing paper of stiglitz and weiss 1981 the results show that default failure does increase with the banks cost of capital but not with the government premium in addition default appears to be determined by a whole host of other factors not typically considered in the credit rationing literature

relationship lending and sme financing in the continental european bank based system this paper analyzes the relationship between banks and smes in the continental european bank based system we find that smes with longer bank relationships have enhanced access to loans but at the same time they bear a higher cost for their debt we also find that firms maintaining two bank relationships get the cheapest debt which establishes a limit for the degree of concentration of bank relationships our results also show that the existence of trust between firm and bank improves access to financing and reduces the borrowing costs whereas it increases the likelihood that guarantees will have to be provided as a consequence it seems that a relationship based on trust is a better strategy to improve smes access to finance than the establishment of longer or more concentrated relationships

financial constraints competition and hedging in industry equilibrium we analyze the hedging decisions of firms within an equilibrium setting that allows us to examine how a firm s hedging choice depends on the hedging choices of its competitors within this equilibrium some firms hedge while others do not even though all firms are ex ante identical the fraction of firms that hedge depends on industry characteristics such as the number of firms in the industry the elasticity of demand and the convexity of production costs consistent with prior empirical findings the model predicts that there is more heterogeneity in the decision to hedge in the most competitive industries

trade and exposure are firms that engage in trade more vulnerable to exchange rate risk in this paper we examine the relationship between exchange rate movements firm value and trade our empirical work tests whether exchange rate exposure can be explained by variables that proxy for the level of international activity firm size industry affiliation and country affiliation the results suggest that while a significant fraction of firms in these countries is exposed to exchange rate movements there is little evidence of a systematic link between exposure and trade indeed what little evidence there is of a link suggests that firms that engage in greater trade exhibit lower degrees of exposure this may reflect the fact that those firms most engaged in trade are also the most aware of exchange rate risk and therefore are the most likely to hedge their exposure

investment pass through and exchange rates a cross country comparison using detailed data from the united states canada the united kingdom and japan we examine the implications of exchange rates for time series of sectoral investment both theoretically and empirically we show that investment responsiveness to exchange rates varies over time positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production important differences exist in investment endogeneity across high and low price over cost markup sectors with investment in low markup sectors often significantly more responsive to exchange rates cross country differences in investment response are only partially explained by industrial organization arguments

investment in manufacturing exchange rates and external exposure abstract this paper introduces a new measure of external exposure which emphasizes exposure to external markets both through export sales and imported inputs into production and uses this measure to explore the linkage between exchange rates and investment in us industry on average manufacturing sectors have evolved to being primarily import exposed by the early 1980s in low price over cost markup sectors markups are relatively unresponsive to exchange rate changes whereas sectoral investment patterns are strongly affected by contrast high markup industries absorb much of the exchange rate fluctuations in markups and pass relatively little through to real investment

exchange rate exposure abstract in this paper we examine the relationship between exchange rate movements and firm value we estimate the exchange rate exposure of publicly listed firms in a sample of eight non us industrialized and emerging markets we find that exchange rate movements do matter for a significant fraction of firms though which firms are affected and the direction of exposure depends on the specific exchange rate and varies over time suggesting that firms dynamically adjust their behavior in response to exchange rate risk exposure is correlated with firm size multinational status foreign sales international assets and competitiveness and trade at the industry level

modelling energy and non energy substitution a brief survey of elasticities estimating the degree of substitution between energy and non energy inputs is the key for any evaluation of environmental and energy policies yet given the variety of substitution elasticities the central question arises as to which measure would be most appropriate apparently allen s elasticities of substitution have been the most used measures in applied production analysis in line with frondel 2004 this paper argues that cross price elasticities are preferable for many practical purposes this conclusion is based on a survey of classical substitution measures such as those from allen morishima and mcfadden the survey highlights the fact that cross price elasticities are their essential ingredients

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

the limitations of industry concentration measures constructed with compustat data implications for finance research industry concentration measures calculated with compustat data which cover only the public firms in an industry are poor proxies for actual industry concentration these measures have correlations of only 13 with the corresponding u s census measures which are based on all public and private firms in an industry also only when u s census measures are used is there evidence consistent with theoretical predictions that moreconcentrated industries which should be more oligopolistic are populated by larger and fewer firms with higher price cost margins further the significant relations of compustatbased industry concentration measures with the dependent variables of several important prior studies are not obtained when u s census measures are used one of the reasons for this occurrence is that compustat based measures proxy for industry decline overall our results indicate that product markets research that uses compustat based industry concentration measures may lead to incorrect conclusions jel g10 g30 l10 a growing number of studies that consider the effects of product markets on financial economics related phenomena use industry concentration measures calculated with compustat data which cover only the public firms in an industry these studies examine issues related to asset pricing hou and robinson 2006 informed trading tookes 2008 idiosyncratic stock return volatility gaspar and massa 2006 mergers and acquisitions song and walkling 2000 fee and thomas 2004 shahrur 2005 corporate governance defond and park 1999 engel hayes andwang2003 rennie2006 karuna2007 capitalstructure lang and stulz 1992 kaleand shahrur 2007 corporate disclosurepolicy

cost of capital and public loan guarantees to small firms in this paper we study the determinants of the spread charged by banks under a uk policy intervention scheme aimed at supporting access to the credit market for small firms through guarantee backed loans we exploit a unique dataset containing data on 29 266 guarantee backed loans under the uk sflg scheme over the period 2000 to 2005 results suggest that lower spreads are offered for loans of larger amounts and higher durations for service firms for larger firms and for those located in the most advanced regions higher spreads are applied to high tech manufacturing firms and to loans issued for working capital purposes we also find that the presence of other extant debt is associated with a relatively higher spread and that this effect is especially significant for the subset of firms that have reached a maximum debt capacity based on collateralized assets further we also find that the higher the incidence of the publicly guaranteed debt over the total amount of outstanding loans the lower on average the spread however an increase in the guaranteed coverage leads to a contraction in the spread only for loans aimed at covering working capital needs rather than investments

exposure to exchange rate movements abstract this paper suggests an approach to measuring a firm s exposure which depends on the stochastic relationship between the firm s real rate of return and exchange rate movements using a simplified two country model exposure is shown to depend on the extent to which individual asset prices adjust with exchange rates the distribution of such adjustments between countries and the relationship between domestic inflation and exchange rate movements while the distribution of real and nominal positions across countries is also a determinant of exposure it is shown that purely domestic firms no foreign assets or liabilities will typically be exposed

linear and nonlinear exchange rate exposure abstract this paper presents a new methodological approach to examine exchange rate exposure which takes account of the role of the market portfolio and macroeconomic variables in exposure regressions exchange rate regimes based on periods of depreciation and appreciation and nonlinear exposure within each regime we show that the stock market s own exposure to exchange rates should be taken into account before considering industry exposure in addition we adjust the exchange rate and the stock market for common economy wide factors that are unrelated to exchange rates within this framework we show that exposure to bilateral exchange rates is statistically and economically important and that industries with extensive international trade are more often exposed than industries with low levels of international trade the signs of exposure coefficients in each regime are consistent with the extent to which an industry exports we also show that nonlinear exposure is often statistically and economically significant interestingly there is little evidence that industries are exposed to a currency basket

pass through and exposure firms differ in the extent to which they pass through changes in exchange rates into foreign currency prices and in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates because pricing affects profitability a firm s pass through and exposure should be related this paper develops models of exporting firms under imperfect competition to study these related phenomena from these models we derive the optimal pass through decisions and the resulting exchange rate exposure the models are estimated on eight japanese export industries using both the price data pass through and financial data for exposure exchange rates can have a major inf luence on the pricing behavior and profitability of exporting and importing firms firms differ in the extent to which they pass through the change in exchange rates into the prices they charge in foreign markets they also differ in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates previous papers have studied either pass through or exposure but none has studied these two phenomena together yet because pricing directly affects profitability the exposure of a firm s profits to exchange rates should be governed by many of the same firm and industry characteristics that determine pricing behavior this paper develops models of firm and industry behavior that are used to study these closely related phenomena together it also provides estimates of pass through and exposure behavior using data from japanese export industries to examine pass through behavior and exchange rate exposure we model a firm with sales to a foreign export market this exporting firm competes with a foreign firm in that export market the costs of the exporting firm are based primarily in the local domestic currency while the foreign firm

exposure and markups this article examines how to properly specify and test for factors that affect exchange rate exposure starting from theoretical underpinnings and a sample of u s manufacturing industries between 1979 and 1995 we find that 4 of 18 industry groups are significantly exposed to exchange rate movements through the effect of industry competitive structure export share and imported input share on average a 1 appreciation of the dollar decreases the return of the average industry by 0 13 consistent with our model s predictions as an industry s markups fall rise its exchange rate exposure increases decreases exchange rate movements are an important source of risk for a firm they affect a firm s expected cash flows and or change the terms of competition for exporters importers and multinationals hung 1992 estimates that during the 1980s u s manufacturing industries lost approximately 23 billion year or 10 of total profits due to the dollar s movements surprisingly early studies which assume exchange rate exposure to be constant e g jorion 1990 bodnar and gentry 1993 and amihud 1994 find that exchange rates have no effect on the stock returns of u s multinationals exporters or manufacturing industries recently however allayannis 1997 and bodnar dumas and marston 1998 examine time varying exposure of industry returns 1 in particular the former article focuses on the effect the variation of u s industries import and export shares have on exposure while the latter focuses on pass through and exposure in a sample of japanese export oriented industries besides trade shares and pass through exchange rate exposure also depends on the markup of an industry specifically in industries with

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

business collateral and personal commitments in sme lending abstract using a database of sme credit approvals from a large belgian bank this paper extends the empirical evidence on the determinants of collateral by examining the determinants of business collateral simultaneously with the determinants of personal collateral commitments our results suggest that firm and relationship characteristics seem to be more important determinants of collateral commitment protection than loan and lender characteristics family firms are more likely to offer a higher degree of collateral commitment protection while introducing competition between banks decreases this likelihood the collateral requirement decreases in the length of the bank borrower relationship furthermore trade credit seems to have a signalling effect the lazy banks hypothesis was not supported our results suggest that beside risk arguments also commercial arguments help explain the pledging of collateral using a continuation ratio logit model we discover several differences in the determinants of the collateralisation decision and the determinants of the type of collateral commitments

risky choices and correlated background risk the analysis of a risky project should take into account not only uncertainties about the return from that project project risk but also uncertainties associated with other ongoing projects and with exogenous factors that can impact final wealth background risk the presence of background risk can change the optimal course of action with respect to a project and ignoring such risk might lead to a poor decision most work on background risk assumes that project risk and background risk are independent and are additive in their impact on wealth however independence is often unrealistic and background risk operates in a multiplicative manner in many situations we relax the independence assumption and consider a model with both additive and multiplicative background risk the optimal decisions in the correlated setting can be very different than those that would appear optimal if the correlation were ignored the impact of correlation differs in the additive and multiplicative cases with positive correlation being beneficial in some cases and negative correlation in others the analytical and numerical results indicate that in analyzing decision making problems it is very important to understand the direction and degree of dependence between project risk and background risks

the changing structure of local credit markets are small businesses special abstract in many countries consolidation in the banking industry has reduced the number of small banks and led to significant shifts in market shares deregulation has fostered entry in local credit markets and the expansion of branch networks increasing competition in local markets small businesses are believed to be more vulnerable to these changes since they are more dependent on credit from local banks in this paper we investigate the consequences of consolidation and entry for these borrowers compared with those for large firms we employ a data set for italy which provides information on volumes of loans and bad loans by size of borrower with a detailed geographical partition we find that mergers are followed by a temporary reduction in outstanding credit to all sizes of borrowers and by an increase in bad loans most likely due to the reassessment of banks portfolios entry has a relatively persistent negative impact on credit supply to small and medium sized firms our results also show that concentration branch density and the share of branches of small banks affect the volumes of credit and bad loans of small borrowers