How Does Exchange Rate Policy Uncertainty Affect Corporate Performance: Evidence from China

ABSTRACT

This research investigates the role of China’s exchange rate policy uncertainty in manufacturing corporate performance using the fixed effect model and quantile regression model. The findings indicate that an exchange rate policy fluctuation constrains better-performing corporates, but is adverse for those with inferior performance. Government subsidy appears to explain the positive impact, and the effect is enhanced or alleviated somehow by corporate governance, growth, and financial constraints. Exchange rate policy fluctuation also significantly pushes corporates to adjust and upgrade their business, which improves their performance accordingly. Additionally, positive shocks significantly stimulate corporate performance, while negative shocks including global financial crisis and COVID-19 epidemic hinder corporate development. Overall, the risk confrontation ability of Chinese manufacturing enterprises presents a positive upward trend. The China government should thus issue more positive exchange rate policies that could send positive signals to the market and increase the openness of its manufacturing industry. More corporate-friendly policies can be launched, such as adjusting the amount of subsidies for manufacturing enterprises in a timely manner and helping manufacturing enterprises, especially more mature ones, deal with exchange rate policy uncertainty risks.

KEYWORDS:

• Exchange rate policy uncertainty
• manufacturing corporate performance
• major public events
• quantile regression
• China

JEL:

• O24
• L25
• G18

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Supplementary Material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2023.2205545

Notes

1. A research framework figure is presented in Supplementary Material Figure S1.

2. A summary of the main variables is presented in Supplementary Material Table S1.

3. The summary statistics result is reported in Supplementary Material Tables S2.

4. The robustness test is presented in Supplementary Material Tables S3–S5.

5. The detailed quantile regression analysis and graphs (Figure S2) of other explanatory variables are stated in Supplementary Material.

6. The Sobel test is presented in Supplementary Material Tables S6.

7. We take several heterogeneity problems into consideration. The analysis and results (Table S7) appear in Supplementary Material.

Additional information

Funding

We acknowledge the financial support from the National Social Science Foundation Key Project of China (Grant No. 22AJL004).