Exchange rate volatility creates uncertainty for firms in open economies, especially in emerging markets with structural vulnerability and shallow financial markets. This work examines the impact of exchange rate volatility on the cash-flow performance of non-financial firms in the Middle East and North Africa (MENA) region of 292 firms across 11 countries from 2014 to 2023. Heteroskedasticity, serial correlation and cross-sectional dependence were estimated using fixed effects, random effects and robustness estimation using Driscoll–Kraay standard errors and Feasible Generalized Least Squares (FGLS). Exchange rate volatility has no statistically significant impact on corporate cash flows across all specifications, confirming the existence of an exchange rate exposure puzzle in emerging markets. Firm size always appears to be the strongest and most robust predictor of liquidity performance. The macroeconomic growth effect is weaker and context dependent: It is insignificant with baseline panel estimations, is negative with Driscoll–Kraay corrections and is marginally positive with FGLS structural controls. Profitability and inflation are virtually nonexistent. These insights inform both financial risk management and policy actions aimed at enhancing corporate stability and supporting sustainable development in emerging markets.
Jamali et al. (2026) studied this question.