Exchange Rate Volatility and Foreign Direct Investment: An Empirical Study of Real Options Approach

• Main Authors: Chia-Wei Chen, 陳佳葦
• Other Authors: 李丹
• Format: Others
• Language: en_US
• Published: 2008
• Online Access: http://ndltd.ncl.edu.tw/handle/99457830072449195299

碩士 === 元智大學 === 國際企業學系 === 96 === This study examines whether the volatility of exchange rate affects the level of FDI (foreign direct investment) by using data of Taiwanese firms. Based on the real options theory we expect a negative impact of exchange rate volatility on FDI. We construct a series of weighted exchange rate specifically for each firm from a sample of TSEC (Taiwan Stock Exchange Corporation) listed non-financial firms from 1999 to 2006. We employ the overseas sales and asset of individual firm as the weights and thus can also derive the exchange rate volatility for each firm. In this study we also investigated if the announcement of SFAS 35 significantly affects the foreign investment strategy of Taiwanese firms. By employing a firm-level unbalance data and panel data of outward FDI of Taiwanese firms, we found the impact of exchange rate volatility on the FDI is significantly negative. We also found FDI level decreases after the announcement of SFAS 35. All empirical results are consistent with the prediction of hypotheses in this study.