| With Chinese government encouraging outward foreign investment, the amount of Chinese outward foreign direct investment (OFDI) has maintained a sustained rapid growth in recent years. The amount of net foreign direct investment of China in 2010 has increased rapidly from 2.85 billion dollars in 2003 to 68.81 billion dollars. Utill the end of 2010, more than 13000 Chinese investors have established outward foreign direct investment enterprises outside the country and the amount of net OFDI accumulated to 3172.1 billion. With the rapid growth of Chinese foreign investment, Chinese enterprises which have outward foreign direct investment have to face more significant exchange rate risk.This study focuses on HK dollar, US dollar, Euro and Australian dollar which are the most important currencies in Chinese OFDI and calculates these four currencies against RMB exchange rate fluctuations as well as its effects on financial performance and stock market performance of Chinese largest OFDI enterprises. In accordance with the characteristics of different exchange rate risks, this paper uses different models to measure macroeconomic fluctuations, short-term fluctuations and long-term fluctuations.This study firstly uses the VaR method based on GARCH (1,1) model to calculate the logarithm yield of the exchange rate between the four currencies and the RMB in different observation period and identifies the exchange rate risk that OFDI enterprises face from a macro point of view. Secondly this paper uses different models to measure exchange rate risks of different cycles on the corporation level and the industry level. In the measure of short-term exchange rate risk, this paper uses Jorion(1990) model with GARCH(1,1) to study the relationship between the daily, weekly and monthly stock returns of Chinese 40 largest OFDI enterprises as well as 13 major industries and the exchange rate fluctuation during the period. In order to measure the long-term exchange rate risk, this paper uses Murphy(1984) classic corporate performance evaluation model to calculate each company’s financial exchange rate risk according to the accounting data of 33 listed companies in the Mainland, and panel data is used to do a regression analysis.This study finds that the VaR method, and the enterprise, industry market indicators as well as corporations’financial indicators all suggest that Chinese OFDI enterprises face very significant exchange rate risk. From the study of stock market performance indicators, this study thinks that exchange rate risk decreases significantly gradually with the extension of the observation period from the daily cycle to the monthly cycle. However, the exchange rate risk increases gradually from monthly cycle to quarter cycle according to the study of accounting indicators. From the analysis of data at the enterprise level, this paper finds that enterprises which use US dollar and HK dollar to invest benefit from the appreciation of the RMB, while enterprises that use euro and Australian dollar benefit from the devaluation of the RMB. This conclusion proves to be true from the analysis of financial performance indicators. From the point of view of enterprise and industry, more than 90 percent of the industries especially the IT industry, manufacturing, extractive industry and social service profession are affected significantly by exchange rate risks. The exchange rate risk of sample enterprises in these industries is much greater than that of other industries. When using financial indicators such as return on equity(ROE) and operating cash flow per share(CFPS) to measure the impact of exchange rate risk on firms’financial performance, this paper find that the sensitivity of ROE to exchange rate fluctuations is higher than that of CFPS. Finally this paper uses panel data to test the quarterly and annual data and finds that exchange rate risk of US dollar, HK dollar and Australian dollar measured by quarterly and annual ROE is very significant, but exchange rate risk measured by CFPS is not significant. |
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