Theses and Dissertations - UTB/UTPA

Date of Award


Document Type


Degree Name

Doctor of Philosophy (PhD)



First Advisor

Dr. Alberto Davila

Second Advisor

Dr. Cynthia Brown

Third Advisor

Dr. Marie T. Mora


It is a widely held belief among financial theorists, economic analysts, empirical researchers, and even the financial press, that exchange rate fluctuations ought to affect a firm's cash flow expectations and thus the value of the firm. Previous research has examined the relationship between currency exposure and firm value by focusing primarily on developed economies and on various variables regarding the firm's assets and revenues. The empirical evidence has not fully established what the link is between currency exposure and firm value; however, the evidence suggests that the relationship could be firm-specific, depending on the geographical distribution of the firm's activities, its export/import structure, and its financing structure. The objective of this dissertation is to examine the impact of exchange rate movements on the equity value of individual firms. To isolate these effects, I focus on firms from Mexico, an emerging economy, because several of its characteristics make it an ideal laboratory for this purpose. Mexico is a small open economy, it has one predominant trading partner, a dominant bilateral exchange rate, and a recent history of large currency swings, which make its economy more exposed to exchange rate changes and could enable greater insights into this issue. Unlike most prior research, I consider the impact of both revenues and costs to measure the different effects of exchange rate changes on different types of firms, according to their level of foreign activity and sources of funding. I analyze a sample of 71 publicly-traded non-financial firms that includes firms with international activities and as well as purely domestic companies. I find significant levels of currency exposure when firms are grouped into industrial sectors; at the individual level, mid-size firms are less exposed than small- or large-size firms to exchange rate fluctuations. In addition, there is a significant negative relationship between currency exposure and the level of international sales. In a sub-sample, currency exposure is also negatively related to foreign-currency denominated liabilities. This suggests that firms that engage in international activities and hold debt in foreign currency are significantly less sensitive to exchange rate movements than firms that rely primarily on domestic sales.


Copyright 2009 Chrystell Flota. All Rights Reserved.

Granting Institution

University of Texas-Pan American