This study examines the effect of real exchange rate changes on multinational firms and incorporates the effect of intra-industry competition on the relation between exchange rates and firm value. To test the relation more effectively, tests are conducted using a sample of automotive firms from the United States and Japan. Consistent with theoretical predictions, there is significant exposure to exchange rate shocks. Moreover, there is evidence of time-variation in exchange rate exposure, which is consistent with changes in the competitive environment within the industry. Finally, evidence is presented that is consistent with foreign sales being a major determinant of exposure and the effectiveness of operational hedging through foreign production.

Using industrial firms from the United States, Germany, and Japan, we examine the effect of bank power on cash holdings. We show that Japanese firms hold more cash than U.S. or German firms. We also document that Japanese cash balances are affected by the monopoly power of banks. During periods with powerful banks, firms' high cash holdings are consistent with banks extracting rents. When banks weakened, Japanese cash levels became more like U.S. firms. We conclude that strong Japanese banks persuade firms to hold large cash balances. This is contrary to widely held beliefs about the Japanese governance system.

Using industrial firms from the United States, Germany, and Japan, we examine the effect of bank power on cash holdings. We show that Japanese firms hold more cash than U.S. or German firms. We also document that Japanese cash balances are affected by the monopoly power of banks. During periods with powerful banks, firms’ high cash holdings are consistent with banks extracting rents. When banks weakened, Japanese cash levels became more like U.S. firms. We conclude that strong Japanese banks persuade firms to hold large cash balances. This is contrary to widely held beliefs about the Japanese governance system.