A Model for Examining Exchange Rate Shocks Affecting on Profitability in Export-Oriented Production Groups

Subject Areas : Financial engineering

Hanieh Ghorbani ¹ , Farhad Hanifi ² , Teimour Mohammadi ³ , Gholamreza Zomorodian ⁴

1 - Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran
2 - Department of Business Management,, Central Tehran Branch, Islamic Azad University, Tehran, Iran
3 - Department of Economics, Faculty of Economics, Allameh Tabatabai University, Tehran,Iran
4 - Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran and member of Modern Financial Risk Research Group

Received: 2022-04-21 Accepted : 2022-07-31 Published : 2023-06-22

Keywords: profitability, GMM Method, Panel VAR, Exchange Rate Shocks,

Abstract :

The exchange rate affects the economic activity, foreign trade and wealth of economic enterprises. The aim of this study is to explain a model to investigate the effect of exchange rate shocks on the profitability of export-oriented production groups. In this regard, the data on exchange rate, tax, oil revenue, export and profitability were collected for 19 export-oriented production groups from 2008 to 2019. To achieve the research goal, the Panel Vector Autoregressive Model (PANEL VAR) using the generalized method of moments (GMM) was used to analyze the data. The results of the the Impulse Response Function show that the effect of exchange rate volatility, tax and oil revenue on the profitability variable is initially negative, but has a positive effect over time and is neutralized after several periods. But, the export impulse has positive effect on profitability. According to the results of variance decomposition, it can be said that the exchange rate fluctuations have more explanatory power for profitability fluctuations.