The Use of Foreign Currency Derivatives and Firm Market Value

The Use of Foreign Currency Derivatives and Firm Market Value This article examines the use of foreign currency derivatives (FCDs) in a sample of 720 large U.S. nonfinancial firms between 1990 and 1995 and its potential impact on firm value. Using Tobin’s $Q$ as a proxy for firm value, we find a positive relation between firm value and the use of FCDs. The hedging premium is statistically and economically significant for firms with exposure to exchange rates and is on average 4.87% of firm value. We also find some evidence consistent with the hypothesis that hedging causes an increase in firm value. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

The Use of Foreign Currency Derivatives and Firm Market Value

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Publisher
Oxford University Press
Copyright
Oxford University Press
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/14.1.243
Publisher site
See Article on Publisher Site

Abstract

This article examines the use of foreign currency derivatives (FCDs) in a sample of 720 large U.S. nonfinancial firms between 1990 and 1995 and its potential impact on firm value. Using Tobin’s $Q$ as a proxy for firm value, we find a positive relation between firm value and the use of FCDs. The hedging premium is statistically and economically significant for firms with exposure to exchange rates and is on average 4.87% of firm value. We also find some evidence consistent with the hypothesis that hedging causes an increase in firm value.

Journal

The Review of Financial StudiesOxford University Press

Published: Jan 21, 2001

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