Exchange Rate Changes and the Operating Performance of Multinationals

Using a sample of 261 U.S. multinationals over the period 1984 to 2002, we examine the relation between exchange rate changes and the profitability of foreign operations. We find that the impact of exchange rate changes on foreign operations' profitability is not statistically significant in the majority of industries. Furthermore, according to our variance components analysis, exchange rate changes explain less than two percent of the variation in foreign operations' profitability for most industries. We also find that the impact of exchange rate changes on foreign operations' profitability is generally weak for non-U.S. multinationals from Australia, Canada, Japan and the U.K. Our evidence is consistent with the finding of prior studies that the impact of exchange rate changes on firm value is not significant for most multinationals