This study is the first attempt to investigate the relationship between the level of risky assets and capital level in a mixed Malaysian banking system covering 83 months starting December 2006. The results of dynamic ordinary least squares indicate positive relationship between capital ratio (CAR) and risk-weighted asset ratio (RWA) in the long run. Furthermore, the causality analysis based on panel vector error correction model (VECM) and two-step dynamic system generalized method of moments indicates unidirectional causality from CAR to RWA. Our results further suggest that higher capital growth and capital buffer provide an extra cushion for the Malaysian banks to pursue relatively riskier financial activities, and the nature of risk-taking behavior of Islamic banks follows that of the conventional banks.

Until recently, there has been little interest put in assessing the impact of foreign currency derivatives on the variation of exchange rate exposure in emerging market. Furthermore, greater economic openness coupled with relatively low intensity of hedging among ASEAN firms motivated us to investigate the relevance impact of foreign currency derivatives (FCD) to firm value under the context of small open economies of ASEAN-4. The study involves 120 non-financial listed corporations from Indonesia, Malaysia, Thailand and Singapore from January 1993 to September 2015. The level of exposure is assessed at aggregate level using Random Effects GLS specification. Several interesting findings are found in this study. First, USD remains the major source of exposure of ASEAN-4 firms. Second, there is no significant influence of the FCD usage to the level of exposure for overall period, suggesting that FCD is not suitable to mitigate long term (operational) exposure. Third, in relation to time varying exposure, there is a noticeable impact of FCD to the level of exposure of Indonesian and Malaysian firms in the middle of the Asian Financial Crisis 1997 and to a lesser extent during the Global Financial Crisis 2008. On the other hand, Singaporean and Thailand firms show mixed findings, suggesting that sample firms in these two countries might have concentrated on other forms of hedging such as operational and natural hedging, whereby the firms are considered resourceful and well diversified.

Despite minimal exchange rate exposure previously found in developed region, comprehensive study on the level of exchange rate exposure in a small open economy such as Malaysia remains scarce. Additionally, ignoring the direction of currency movement inflicts bias in estimation due to the commingling of positive and negative exposure. Hence, this paper examines the symmetric and asymmetric exchange rate exposure of 207 Malaysian non-financial firms at both aggregate and firm levels. Employing data from 1995 to 2016, the panel analysis found significant aggregate stock returns exposure to changes in the USD, mainly due to the strong US position as Malaysia’s major trading partner. Next, the firm-level analysis involving regression with GARCH(1,1) specification concludes that 35.75% of our sample firms are affected by the symmetric exposure. The higher exposure of Malaysia sample firms relative to western economies reflects the lack of hedging exercises and considerably moderate growth of derivatives market in Malaysia. In term of asymmetric exposure, there are large proportions of firms significantly affected by the USD appreciation. Inclusion of five sub-periods comprising two financial crises and pegging regime into the analyses indicates different significance levels throughout the periods. The detailed results of the study offer better insights for firm manager in making strategic decisions towards effective currency exposure management.

The study explores the role of foreign currency derivatives (FCD) in alleviating the impact of currency exposure of 106 non-financial listed corporations in Malaysia from January 1995 to December 2014. While there are so much emphases being placed on developed economies, this study investigates the real impacts of the FCD to the level of firm performance under the context of small open economy of Malaysia. From the Random Effects GLS panel analysis, it was evident that hedged firms were less exposed compared to non-hedged firms. The USD and the Japanese Yen became major sources of currency risk exposure of Malaysian firms mainly due to the large cross-border trading activities with both nations. However, the significance of FCD could only be realized under short term planning and not suitable for long term risk management planning.¹ This argument is supported by the sub-period analysis, where majority of non-hedged firms were significantly affected during the middle of the Global financial crisis 2008 (GFC) and the Asian financial crisis 1997 (AFC) compared to hedged firms. To sum up, Malaysian firms who had devoted considerable resources in carrying out the short term FCD routine managed to show greater stability in firm’s earnings/cash flows compared to non-hedged firms.

This study examines the extent and nature of foreign exchange exposure in 405 listed corporations operating in the ASEAN-4 nations, Indonesia, Malaysia, Singapore, and Thailand. The study period of 23 years, from 1995 to 2017, covers the two major crisis periods, the Asian financial crisis (AFC) of 1997 and the global financial crisis (GFC) of 2008. Our study improves on earlier work by using two alternative assessment methods, i.e., stock returns (SR) and cash flow (CF) methods. We report several interesting and noteworthy results. First, we find that the stock returns approach results in a higher incidence of exchange rate exposure relative to the cash flow method. Specifically, about 65% and 28% of the total ASEAN-4 firms had significant exposure to all currencies under the stock returns and cash flow methods, respectively. Second, we find the sample firms to have predominant exposure to the US dollar, signifying the important role played by the United States (US) as the major trading partner of the ASEAN-4. Third, when evaluating time-varying exposure, we find that the incidence of the exchange rate exposure is event-specific. Most of our sample firms were highly exposed to exchange rates during the mid-points of the AFC and the GFC.