Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Assessing Asymmetric Exchange Rate Exposure of Malaysian Non-Financial Firms

Author(s): Wan Nurhanan Wan Suhaimi, Hishamuddin Abdul Wahab

The paper aims to assess the level of asymmetric currency exposure of Malaysian nonfinancial firms. Existing studies of currency exposure of Malaysian corporations ignored the commingling effect of positive and negative signs of exchange rate changes, causing bias in estimation. To address the specification gap, the study gauges the extent of asymmetric currency exposure of 207 non-financial Malaysian firms from 1995-2016. The panel analysis is employed to access the overall exposure of the sample firms while firm-level analysis involves regression analysis with GARCH (1,1) specification. The asymmetric analysis shows high percentage of the sample firms are having significant exposure to the USD depreciation; signifying large proportion of import base firms among the Malaysian sample firms. The level of currency exposure is also found to be event-specific where higher composition of firms had significant exposure during the Asian financial crisis 1997. Net importer seems to be in favor during foreign currency depreciation and vice versa for net exporters. Given this, an intuitively plausible strategy for net importer might be to put vigorous hedging activities during the appreciation of the USD to offset the adverse impact of escalating imported price. Stringent risk management program also should be closely monitored especially during the middle of financial crisis.

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