PROCEEDINGS. International Conference on Economic and Information System Management
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Nyoman Ardiantha Putera R. It is inherent issues for companies that operate and are dependent to the value of foreign currency, which can affect revenue significantly and will eventually influence on how public perceive company's ability to manage their operation, hence, changing its kajian broker global rkas 2017 value.
In IAS 21 paragraph 28 mentions that "exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements shall be recognized in profit or loss in the period in which they arise" and paragraph 39 stated that income and expenses along with other comprehensive income should be translated at the date of the transaction.
The statement may indicate that foreign currency exchange will influence company's 3 value which can be measured through cash flow and stock return. The variables that affect foreign currency exposure to multinational companies' operation are its national economy, the more open economy is, and the stronger is the relationship between return on the stock markets and exchange rates Friberg and Nydahl, Pierdzioch and Kiyzs also find evidence of a co-integration relation between national exchange rate exposure and the industry composition of a country's import.
There is a transaction exposure that can affect companies' monetary transaction, which meant for profits but could be obstructed by the fluctuation of foreign currency. This kind of problem involving kajian broker global rkas 2017 such as currencies can be a significant problem for business transaction, if a company conduct business in payables and need to pay in the future where its main currency depreciates, it can suffer from a big loss.
This can be an adverse impact for company's stock value, because this situation can be perceived as declining trend of company's performance by investors. There is also translation exposure due to translation kajian broker global rkas 2017 books of accounts into home currency. And the most important is economic exposure which can directly impact the value of the firm, which is the kajian broker global rkas 2017 of operating cash flows and the asset it possesses.
Exchange rate impact is more pronounced kajian broker global rkas 2017 firms that use foreign currency in their operations, exposure is high for importing and exporting firms. For 4 exporting importing firms devaluation of the domestic currency enlarges diminishes the profits and stock returns in kajian broker global rkas 2017 currency Pritamani, Shome and Singal, Exposed multinational companies may also have problems regarding their cash flows, as it can disrupt their operating cash flows and debt payment.
As the capital market and trade becomes more integrated and open, the risk on foreign currency exposure due to exchange rate volatility also become more important over the years. Also He, Ng and Wu found that Japanese multinationals' stock returns are positively correlated with contemporaneous exchange-rates.
Cash flow exposure is also relevant to be analyzed as it is more impacted than equity kajian broker global rkas 2017, it also emphasized in theoretical literature in academic research, and those reasons were: Kajian broker global rkas 2017 looking at prior studies that shown weak evidence of exposure in U. There is still few studies that analyze the exposure of foreign currency in company's cash flow volatility.
For example, operating exposure has links to various factors such as competitiveness, entry barriers, etc. Some studies stated that foreign currency rate is truly unexpected, kajian broker global rkas 2017 exchange rate is not priced in the Indonesian stock market and moreover foreign currency exposed equities have on average lower returns.
There is a need to research on how significant foreign currency exposure affecting the stock's value in Indonesian non-financial companies, to what extent public consider foreign currency exposure risk is important to non-financial companies. Prior research stated above have shown that there are relationships between foreign currency to stock returns and cash flows. This research aims to analyze to what extent foreign currency volatility affects cash flows and stock returns of Indonesia listed companies, by focusing in these three research questions: What is the impact of foreign currency volatility to companies' cash flows?
What is the impact of foreign currency volatility to companies' stock return? Foreign currency transactions amount are keep increasing due to more integrated international market such as Asean Economic Community, WTO, etc. Company's operations that are affected by foreign currency transactions or results from translating currency can also become the trigger on how the financial statement and statement of cash flow are presented to public, as this were stated in the PSAK 10 which regulates the translation of functional currency to reporting currency in Indonesia, resulting in various responses from the market which can be observed from the companies' stock return.
To investigate the impact of foreign currency volatility to companies' stocks return and cash flow. To examine which major currency that has the strongest influence to companies' stock return and cash flows. This research has the purpose of helping companies from different industries to find currency which affect Indonesian capital market the most so they can manage their risks from foreign currency exposure, hence, giving them competitive advantage in international market.
This research will help investors to understand the relationship of foreign currency exposure to stock's return and cash flow. Giving them more understanding that will lead to a better decision in investing. Academic contribution 8 This research provides empirical evidence of foreign currency volatility to companies' cash flows kajian broker global rkas 2017 stock returns.
The finding shows that foreign currency volatility is associated with companies' cash flows. Kajian broker global rkas 2017 proves that companies' cash flows are subject to foreign currency volatilities and its future growth might be disturbed from unexpected changes.
Chapter 1 Introduction This chapter explain about the background of the problem, problem statement, research motivation, research objectives, research contribution, and writing structure. Chapter 2 Theoretical Framework and Hypothesis Development This chapter explain about kajian broker global rkas 2017 theoretical framework or theories that are relevant with the theories used in this research as the basis in explaining the relationship between variables, research models, and constructing hypothesis.
Chapter 3 Research Methods This chapter explain about the research methods used which consists of sampling and empirical method along with its research model and operational definition of the variables. Chapter 4 Results and Discussions 9 This chapter explain about the characteristics of samples and results from data processing using Eviews software along with analysis of the results. Chapter 5 Conclusion and Suggestions This chapter explain about the conclusion gained from the research's results, and suggestions for related parties also for suggestions in subsequent research.
Based on the theory, this study proposes two directional hypotheses. In an efficient capital market, where securities adjusts rapidly to the infusion of new information can be referred as an informational efficient market. The basic assumptions underlying efficient market are: According to Famamarket efficiency are classified into three categories.
First is the weak form where all information containing past price data 11 are fully reflected on the current kajian broker global rkas 2017. It states that the return on the market is independent and past rates of return have no effect on future rates. Weak efficiency thus rejects technical analysis, which is the study of the stock's performance based on the past trends which is consistent with random walk hypothesis.
Second is the semi-strong form, where prices adjust to information that are publicly available to all market participants i. As the current prices already take into consideration all the present available public information, fundamental analysis will not help to beat the market. The third is the strong form where prices adjust to all public and privileged information from public and private sources available to every market participants.
The main attractiveness of the Efficient Market Hypothesis relies on the fact that it is built upon economic theory, specifically "random walk" that is the EMH is related to "the random walk", where price series have subsequent price changes which are random departures from previous prices.
That is to say, stock prices actually possess all available information in the market. Foreign currency exposure can also be broadly defined as exchange rate volatility risk that affects multinationals and large corporation, also small and medium-sized enterprises as well, even those which only operate in their home country. This exposure has short-term to 13 medium-term nature.
The second risk, translation exposure arises from the effect of currency fluctuations on a company's consolidated financial statement, particularly for kajian broker global rkas 2017 which have foreign subsidiaries.
This exposure has short-term to medium-term nature. The third risk, economic or operating exposure, is the lesser known from the previous two, but still has a significant risk.
Arise from unexpected currency fluctuations on a company's future cash flows and market value, this exposure has long-term nature. This exposure can have a substantial impact, as unexpected exchange rate changes can largely affect company's competitive position, even if the operation is domestic or internationally. Currently, investment banks and market participants have significant volatility exposure with no acceptable method of hedging, but Krause explained that using realized volatility formula can provide a method for market participants to speculate on, or hedge against, changes in actual volatility during the realized volatility period.
He et al also found that 25 percent of Japanese multinationals' stock return are positively correlated with contemporaneous exchange rate changes. Further, highly-leveraged firms or firms that pay large dividends tend to have smaller exchange rate exposures, and smaller firms tend to hedge more than larger firms do. Furthermore, research by Korhonen found the existence of co- integration relationship between effective exchange rates and national stock market indices and stated that the co-integration relationship affects exchange rate exposure.
Furthermore, other study for example, Bacha kajian broker global rkas 2017 al, found significant exchange rate exposure from firms in Malaysian listed firms which is substantially higher than most countries, especially developed ones.
Also USD as the most important source of exposure with 63 percent of sample firms exposed to foreign currency. Also states that from previous studies U.
Proving that there is a possibility for a country to not be affected by foreign currency volatility considering its economic condition economic exposure. With regard to exporting and importing companies, a research done by Sangany stated that domestic currency depreciation are associated with more competitive local firms, leading to an increase in their exports which eventually raises their stock prices.
A high currency value generates a favorable transaction exposure and creates excess demands for domestic stocks. This research aims to test whether the foreign currency volatility have significant relationship to stock return or not. Previous studies shows that the increase of foreign currency risk will affect firms' stock price in unfavorable way. The estimation of cash flows exposures in kajian broker global rkas 2017 paper represents a sensible alternative to the common analysis of stock price exposures.
The paper found that the impact of exchange rate risk on stock prices and cash flows is similar and that a related set of economic factors determines these types of exposures in a way that is consistent with economic theory and anecdotal evidence. The statement earlier is also consistent with Sahlian kajian broker global rkas 2017 al who suggests that cash flow risk exists when the amounts of future cash flows which can affect 17 companies' earnings to change.
It could be a contractual cash flow associated to an existing asset and liability, or it may be emerge from a transaction that is kajian broker global rkas 2017 to occur but is not yet hedged by any means or contracts. Another research from Bartram also found that firms with foreign currency based activities such as importer and exporter firms, its corporate cash flows are subject to foreign currency rate risk and became an important corporate objective and activity to hedge.
The foreign currency volatility on the firm level would affect changes in operating cash flows. This also can affect the reductions in firms' value, as the company suffers constraints in its internal financing and choose to raise external funds which will increase its cost of capital.
Wei and Starks found that firms with greater growth opportunities, higher default probabilities, and more kajian broker global rkas 2017 products resulted in higher foreign currency exposure. This would affect how investors perceive firms' risk management. Also cash flow can be used to directly measure companies' internal performance and how managers implement their decision making.
The secondary data for kajian broker global rkas 2017 dependent variable would be in the form of stock return, annual cash flow and quarterly cash flow from non-financial companies in Indonesia Stock Exchange IDX. For the independent variable this study will employ the volatility of foreign currency which consists of: The selection of these currencies is following the concept of The Global Economy Triad kajian broker global rkas 2017 Ohmaealso according to Rugman there are several reasons for following the Triad concept; first: Also for control variable, this study employ market return, interest-bearing liability, and total asset.
The financial companies were removed due to the complexity and variance in technical management analysis regarding the foreign currency volatility. The period used in this research will be from January to December Then, this research will take sample of shares from non-financial companies in Indonesia Stock Exchange for the span of 5 years January - December to measure the movement of stock price following the changes in home currency in Indonesia Rupiah.
The data for monthly and yearly stock information, such as end-of-period closing prices and return will be collected from Indonesia Stock Exchange, Yahoo Finance, and Osiris database. The purposive sampling process follows these categories: The companies that are still listed and not delisted in the period of to Companies that have complete information on stock return, no return changes would be still accepted.
Companies that are not included in the financial sector. Stocks that are available to trade in the IDX This study take samples of non-financial companies to avoid complexities in financial estimation that are inherent in financial companies. Operational variable is a definition that is given to variable with the purpose of giving it explanation of content. Some of the content are straight forward, but some elements need to go through over some processes first. Quarter Cash Flow Quarter Cash Flow is used as a proxy to analyze the volatility of foreign currency kajian broker global rkas 2017 the changes in cash flows throughout the year, during the period of It will be calculated using this formula to include it in the model: