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IMPACT OF FOREIGN EXCHANGE EXPOSURE ELASTICITY ON FINANCIAL DISTRESS OF FIRMS A COMPARISON OF DEVELOPED AND EMERGING ECONOMIES

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02 Pages : 18-44

http://dx.doi.org/10.31703/gssr.2018(III-I).02      10.31703/gssr.2018(III-I).02      Published : Mar 1

Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies

Abstract

    This study looks into the potential effect of foreign exchange exposure elasticity (FEEE) on the financial distress of non-financial firms from an emerging country (Pakistan) and a developed country (USA) during 2003-2015. It employs mixed methodology in which a comprehensive quantitative analysis is made from the panel data of the sample companies from both countries (Pakistan and USA). Subsequently, views of Chief Finance Officers (CFOs) of different companies are given. Results show that the effect of foreign exchange exposure is not statistically significant on the financial distress of Pakistani firms at contemporaneous level but it has positive significant effect at lagged level. Results also show that at gross exposure level, foreign exchange exposure of US manufacturing firms has a significantly positive effect on their financial distress contemporaneously but not at net market level. In case of US non-manufacturing firms, the foreign exchange exposure elasticity does not impact significantly on the Z-Score at gross exposure level. But the market model shows a weak significant effect of the FE Exposure on the distress of such firms in USA at relatively higher significance level. The firms fundamental attributes except foreign sales exhibit a significant effect on the financial distress. Only debt has negative coefficient which describes a positive effect on the financial distress. The findings have notable implications for the financial stability of the firms, especially in Pakistan.

    Foreign Exchange, Exposure Elasticity, Financial Distress, Stability, Financial Crisis, Emerging, Multinational Firms, Chief Finance Officer

    (1) Allah Bakhsh
    Assistant Professor, Department of Commerce, Bahauddin Zakariya University, Multan, Pakistan.
    (2) Syed Zulfiqar Ali Shah
    Associate Professor, Faculty of Management Sciences, International Islamic University, Islamabad, Pakistan.
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Cite this article

APA

    APA : Bakhsh, A., & Shah, S. Z. A. (2018). Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies. Global Social Sciences Review, III(I), 18-44. https://doi.org/10.31703/gssr.2018(III-I).02

CHICAGO

    CHICAGO : Bakhsh, Allah, and Syed Zulfiqar Ali Shah. 2018. "Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies." Global Social Sciences Review, III (I): 18-44 doi: 10.31703/gssr.2018(III-I).02

HARVARD

    HARVARD : BAKHSH, A. & SHAH, S. Z. A. 2018. Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies. Global Social Sciences Review, III, 18-44.

MHRA

    MHRA : Bakhsh, Allah, and Syed Zulfiqar Ali Shah. 2018. "Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies." Global Social Sciences Review, III: 18-44

MLA

    MLA : Bakhsh, Allah, and Syed Zulfiqar Ali Shah. "Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies." Global Social Sciences Review, III.I (2018): 18-44 Print.

OXFORD

    OXFORD : Bakhsh, Allah and Shah, Syed Zulfiqar Ali (2018), "Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies", Global Social Sciences Review, III (I), 18-44

TURABIAN

    TURABIAN : Bakhsh, Allah, and Syed Zulfiqar Ali Shah. "Impact of Foreign Exchange Exposure Elasticity on Financial Distress of Firms: A Comparison of Developed and Emerging Economies." Global Social Sciences Review III, no. I (2018): 18-44. https://doi.org/10.31703/gssr.2018(III-I).02