The impact of currency risk on US MNCs: Evidence from currency crises

When countries shift from a fixed-to-floating currency regime, the change in currency risk for a US MNC is larger for currencies tied to the dollar during the fixed regime than for non-dollar linked currencies. Our analysis exploits this difference in changes in currency risk to provide new and compelling evidence on the impact of currency risk on US MNCs. The regime shifts have a statistically and economically significant impact on net firm value, but little discernible impact on cross-border investment entry decisions and cross-border acquisition announcement returns. We conclude that factors other than currency risk such as strategic considerations are of first-order importance for firms' cross-border investment decisions. Nonetheless, the resulting net exposure to currency risk of US MNCs is significant.