Does Multinationality Matter For Exchange Exposure? Implications Of Operational Hedging

A popular notion is that the exchange risk exposure is greater for international firms than domestic firms. In this paper, the authors examine the exchange risk exposure of U.S. firms for the period of 1983-2003, comparing samples of multinational and non-multinational firms. Since MNCs and non-MNCs differ not only in size and other characteristics, they construct matched samples of MNCs and non-MNCs based on the propensity scores estimated by a probit model. They find that multinationality matters for a firm's exchange exposure but not in the way usually presumed. Contrary to popular perceptions, the exchange risk exposures are actually smaller and less significant for MNCs than non-MNCs.