The effect of exchange rate on firm performance: Evindence from Turkish listed firms

Firm performance is a subject that researchers have been working on for many years. The factors which determine the firm performance have been one of the issues emphasized in the studies. The exchange rate is a price. In other words, the exchange rate is the price of one currency in terms of another currency. A country's unstable currency leads to negative economic activities in that country. While the exchange rate is determined on the basis of international trade in goods and services, money markets became more effective in determining exchange rates as a result of the rapid development of technology. In this context, one of the most critical indicators in economy is the foreign exchange rate. This study aims to explain the effect of exchange rate on the financial performance of textile firms. In this context, 22 Turkish textile firms were selected for the period between 2005 and 2019. The Least Squares Dummy Variable Model was employed for analyses. In the study, Return on Asset (roa) was used as the dependent variable and the Real Effective Exchange Rate (reer) as the main independent variable. In addition, age, size, and lev were added as control variables in the study. Return on equity variable was also used to test the robustness of the main model. In conclusion, it was found that the change in the real exchange rate affected the roa and roe negatively and this effect was statistically significant.