Bilateral Exchange Rate Exposure and Firm Value: Evidence from USD/CNY and U.S. Multinationals

Sammanfattning

This study examines how changes in the USD/CNY exchange rate influence stock returns for U.S.-based multinational corporations (MNCs), and whether this effect varies depending on the firm’s level of exposure to the Chinese market. The study is based on the established theory on exchange rate exposure risk, where firm value is expected to be affected by currency fluctuations. However, prior empirical results have often shown weak or insignificant relationships, a phenomenon referred to as the “exchange rate exposure puzzle”. To analyze this, a quantitative panel data approach is used, based on monthly data for 30 U.S.based MNCs during the period 2015-2024. The effect of exchange rate movements on stock returns is estimated through regression models, including pooled OLS and models with firm and time-fixed effects. Exposure to China is measured as the share of company revenue generated from the Chinese market. The results indicate that changes in the USD/CNY exchange rate do not have a statistically significant effect on firm stock returns. Furthermore, no support was found for the hypothesis that firms with higher exposure to China are more sensitive to exchange rate movements. These results are robust and consistent across all model specifications. Thereby, the study contributes to the existing literature by providing further empirical support for the “exchange rate exposure puzzle”. The results suggest that, despite the theoretical importance of exchange rate risk, in practice it may be difficult to identify the effect on firmlevel stock returns. A possible explanation is that firms effectively reduce their exposure through financial and operational hedging as well as geographical diversification. Overall, the study indicates that exchange rate fluctuations in the USD/CNY do not represent a central explanatory factor for variations in stock returns among large U.S.-based MNCs during the sample period.