Firm-level exchange rate exposure in the Eurozone

Abstract

Using a sample of 1154 European firms from 11 countries, we show that firm-level exchange exposure for Eurozone and non-Eurozone European firms has increased since the introduction of the euro, but this rise was smaller for Eurozone than non-Eurozone firms. The increase in firm-specific exposure was offset by a substantial reduction in market-level exchange exposure in most Eurozone countries, so the advent of the euro appears to have been associated with a shift in exchange risk from systematic to firmspecific. We also find that post-euro, Eurozone firms' exchange exposure is significantly greater than that of non-Eurozone European firms. This difference, however, disappears after controlling for several country-specific and firm-specific characteristics that potentially influence firms' exchange exposure.