The Relationship between Exchange Rate Exposure, Strategic Resources and Firm Value: Evidence from Taiwan_s Stock Market

This paper aims at investigating the relation among foreign exchange exposure, strategic resources and firm value for the Taiwan market. Our sample includes all firms listed on Taiwan´ s stock market during the period of 2001-2005. We use a GARCH (1,1) approach to capture the time-varying volatility of stock returns and risk. We reach the following conclusions: (1) Firms are able to construct strategic resources to manage economic exposure. Built-in of these strategic resources can decrease the fluctuation of cash flows and boost the market value of a firm. (2) The joint use of short-term hedging instruments and long-term strategic resources can have only limited effects in lowering currency exposure. (3) Evidence show that the majority of firms using currency derivatives are for speculative purpose.