Vincent Ateka , Dr. Kwame Osei-Assibey

Abstract

The study builds on the work of Belghitar et al. (2021) by examining the impact of exchange rate exposures on SMEs in the UK, post-Brexit. The aim was to assess whether the UK’s decision to leave the EU was economically advisable, with a specific focus on whether SMEs would be less susceptible to exchange rate fluctuations. Previous literature shows that exchange rate fluctuations were offset by the flow of goods and services for EU countries; thus, post-Brexit, the study hypothesized that the UK would be more susceptible to these fluctuations, adversely affecting SMEs. This paper used a similar methodology to Belghitar et al. (2021) – making use of a two-factor regression model and maximum likelihood estimation to examine the impact at a firm and industry level. The findings indicate that the UK’s decision to leave the EU benefited its SMEs. UK SMEs were less prone to USD fluctuations and residual currency fluctuations and benefited from euro appreciations. However, depreciations in the euro impacted UK SMEs more aggressively than before. The study concludes that operating as an independent state appears beneficial for UK SMEs, making them less prone to exchange rate fluctuations.