Balance sheet exchange rate exposure, investment and firm value: evidence from Turkish Firms

Koyuncu O.

Central Bank Review, vol.3, no.2, pp.1-26, 2003 (Journal Indexed in ESCI)

  • Publication Type: Article / Article
  • Volume: 3 Issue: 2
  • Publication Date: 2003
  • Title of Journal : Central Bank Review
  • Page Numbers: pp.1-26


This paper provides evidence on the effects of a combination of balance sheet exchange rate exposure and real exchange rate movements on investment. In highly inflationary developing economies like Turkey, firms use the foreign currency denominated assets and debts to defend themselves against inflationary effects and try to benefit from open positions when the currency is undervalued or overvalued. With measuring balance sheet foreign currency exposures for Turkish Industrial firms in the period of 2000-2003, we find that the firms with negative (positive) balance sheet exchange rate exposure decrease their investments by the depreciation (appreciation) of the value of TL. In addition, we show that there is a positive association of expansion in investments with the firm value.