We examine the effect of competition on exchange rate exposure using survey data from 55 countries. We find that exposure increases with the intensity of competition. Exposure is higher when firms face price competition in international and domestic product markets and when rivals compete using an unfair financial advantage. Furthermore, competition is a leading determinant of exposure, dominating the usual determinants. Exposure also increases with several determinants not previously empirically examined, such as firm-level financial constraints. These results hold for small, large, foreign-involved, and purely domestic firms. Finally, import-only firms have higher exposure than export-only firms. Our survey results are likely to capture exposure before firms' hedging actions.
This study examines restructuring in which a firm divests an operating asset in exchange for another operating asset. Since liquidity, capital structure, and distributional issues are not immediately associated with tax-free asset-for-asset exchanges, they are well suited for examining the competing hypotheses related to divestitures. We find that the abnormal returns associated with asset exchanges are generally smaller than those associated with other divestiture restructurings except when indications of value are provided. Our analysis identifies positive valuation effects for firms undertaking focus-enhancing exchanges, but a dominating consideration is whether the value of the units traded is indicated. Copyright (c) 2010, The Eastern Finance Association.
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