Foreign Market Cash Flow Exposure: A Multi-Country, Firm-Level Study

Prompted by recent financial integration and increasingly regional nature of trade and investment flows, we investigate the existence and characteristics of international market-related cash flow exposures for international and domestic companies. Specifically, we study whether firm-level cash flow exposure varies with a regional or global market index in addition to the usual domestic market index. We investigate how this exposure varies with identifiable firm characteristics such international sales exposure and whether this exposure differs systematically across a variety of different countries. We also investigate whether the same model may be used to measure exposure in crisis and non-crisis periods using the Asian economic and financial crisis as a natural experiment. Our empirical investigation relies on a sample of 1325 companies from eight (non-U.S.) countries for the period July 1996 - June 1998. We find significant evidence of regional cash flow exposure across our sample, and this exposure increases in proportion to firm sales in the region. We also find evidence that even domestic companies are influenced by the stock market in other regions. Finally, we find clear evidence of increased exposure for companies with significant sales in Asia during the crisis in that region.