The impact of the volatility of the exchange rate on the financial performance of the companies: Empirical literature review

Abstract

Firm performance has played a central role in management research, as it is a complex and multidimensional phenomenon. The latest international crises have prompted researchers to focus on the financial performance of companies and to study its relationship with the fluctuation of the exchange rate. Many important studies has allowed us to have a solid technical knowledge of the impact of exchange rate fluctuation on the financial performance of companies. This article is part of the literature reviews listing six main empirical studies related to the relationship between exchange rate volatility and corporate financial performance. Authors such as Mitton (2006), Chatterjee & al (2010), Takashi Hanagaki and Masahiro Hori (2015) have demonstrated a positive relationship between volatility the exchange rate and the financial performance of companies. Others, such as Park et al (2006); Baggs et al (2011), Ikechukwu Kelilume (2016) and Md Reaz & al. (2017) state that the impact is negative.  These authors used many variables is their studies; internal company variables (size, workforce, etc.), variables measuring the company's financial performance (rate of return on assets, rate of return on equity, etc.), and variables related to the macroeconomic environment (growth rate, GDP, inflation rate, etc.). In this article, we will first define the volatility of the exchange rate and present its different concepts, then we will define the financial performance of companies and its main indicators, finally, we will focus on the different empirical studies that have investigated the relationship between both of them.