Capital Account Restrictions, Exchange Rate Volatility, and Firm Value

Building upon a data set of publicly traded firms in Thailand, we find that the exposure of firms to exchange rate volatility appears to change during the period of capital account restrictions (in the form of the un-remunerated reserve requirement on capital inflows) between 2006-07. We also find that exchange rate volatility of Thai baht against four major currencies- the US dollar, the British pound, the euro, and the Japanese yen- appears to be greater during the implementation period of capital account restrictions. Our results also show that stock returns for some firms are greater/less sensitive to exchange rate volatility during the capital account restrictions period, suggesting that the restrictions on capital inflows are beneficial to some firms while have a detrimental effect on other firms