Lugkana Worasinchai Step 5 At this step all of the papers selected in the above step, and their relevant references were identified, thoroughly reviewed, and summarized. These results are shown in Table 1 below: Table 1: Search results from the three research databases Database Keywords Business Characteristics (Foreign Exposure)
Currency Hedging Strategies
Exchange Rate Management (Attitude toward Risk)
EBSCO (# in each step) S1:8 S2:8 S3:8 S4: 4 S1:10 S2:10 S3:10 S4:2 S1:8 S2:8 S3:8 S4:5
Emerald (# in each step) S1:20 S2:15 S3:11 S4:5 S1:21 S2:15 S3:2 S4:2 S1:31 S2:15 S3:10 S4:2
Science Direct (# in each step) S1:35 S2:15 S3:9 S4:9 S1:29 S2:15 S3:15 S4:11 S1:18 S2:15 S3:13 S4:9
The final step of the review methodology resulted in 49 references (sum of S4s in all nine cells). The following review represents the most relevant findings and has been synthesized using both the references found in Step 4, as well as the most relevant references cited in those references.
2.1 Exposure to foreign currency transactions One important business characteristic of today’s business firms is the firm’s exposure to the risks associated with foreign exchange transactions (Edelshain, 1993) as shown by columns 2 and 4 in Table 2. These factors have also been referred to as One major factor that has been frequently cited for describing business characteristics of a firm in relation to its foreign exchange management and policies is the ‘size’ of a firm which is normally described by its revenues. In a milestone study Edelshain (1993) suggests that both the company size is one major factor that determines the methods a company uses to manage its currency exposure and found a positive association between the use of forward market contracts and the size of the firm. Similarly, Belk (2002) found that the size of a company had an impact on the centralization issue in that small companies often gave a lot of leeway to operating units and medium companies reduced the leeway allowed. As companies became larger initially the freedom to make decisions was further reduced, but the largest companies of all, in recognition of an inability to optimize in such a complex area as global finance, tended to reverse this centralization trend to some extent by providing the operating units with formal guidelines but allowing considerable leeway within the boundaries. The third characteristic is related to the locus of responsibility for managing currency exposure, whether such responsibility belongs to the parent company or to the subsidiary (Edelshain, 1993). This factor has also been referred to as the responsibility location factor (Goldberg, 2008; Goldberg and Tille, 2010; Ito, Koibuchi, Sato and Shimizu 2010; and Lu, Qiu and Song, 2012) The current study uses the ‘the extent of operations in foreign countries’ as an indicator for the locus of responsibility and the level of exposure to the foreign currency risks, as shown in Table 2. In a study of foreign exchange risk, Zubeiru et al (2007) examined exposure of listed firms on the Ghana Stock Exchange to the exchange rate risks for the period of January 1999 to December 2004 and found that fluctuations in all major foreign currencies are the major source of foreign exchange risk to the listed firms on the GSE with the USD leading the list for both private and public sectors. Most firms had negative exposure coefficients suggesting that the majority of the listed firms would experience an adverse valuation effect when the local currency (cedi) depreciates against other currencies, and benefit when the cedi strengthens in value relative to these currencies. Firms with exposure to the UK pound on the other hand experienced higher stock returns as the cedi depreciated against the UK pound. It is therefore advantageous for listed firms on the GSE to denominate their international transactions with the UK.
342