Foreign exchange exposure and multinationality
We examine the relation between firms’ foreign exchange exposure and the extent of their multinationality as a proxy for operational hedging. Using a sample of 953 US firms over the period 1999–2006, we show that there is a nonlinear relation between operational and financial hedging, confirming ane...
| Main Authors: | , |
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| Format: | Journal Article |
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Elsevier BV, North Holland
2014
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| Subjects: | |
| Online Access: | http://hdl.handle.net/20.500.11937/44052 |
| _version_ | 1848756887318691840 |
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| author | Hutson, E. Laing, Elaine |
| author_facet | Hutson, E. Laing, Elaine |
| author_sort | Hutson, E. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | We examine the relation between firms’ foreign exchange exposure and the extent of their multinationality as a proxy for operational hedging. Using a sample of 953 US firms over the period 1999–2006, we show that there is a nonlinear relation between operational and financial hedging, confirming anecdotal evidence that many highly multinational firms do not hedge with derivatives. We find that operational hedging and financial hedging are significantly inversely related to firms’ foreign exchange exposure, providing evidence that the two hedging techniques are complementary for all but the most highly operationally hedged firms. By comparing our findings for 1999–2006 with 1999–2009, we show that this complementarity breaks down when exchange rate volatility is high – as the effectiveness of financial hedging diminishes. An important message for firms is that operational hedges work, and they potentially provide better protection than financial hedging during times of stress. |
| first_indexed | 2025-11-14T09:19:20Z |
| format | Journal Article |
| id | curtin-20.500.11937-44052 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T09:19:20Z |
| publishDate | 2014 |
| publisher | Elsevier BV, North Holland |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-440522017-09-13T14:03:55Z Foreign exchange exposure and multinationality Hutson, E. Laing, Elaine foreign currency derivatives foreign exchange exposure operational hedging multinational firms We examine the relation between firms’ foreign exchange exposure and the extent of their multinationality as a proxy for operational hedging. Using a sample of 953 US firms over the period 1999–2006, we show that there is a nonlinear relation between operational and financial hedging, confirming anecdotal evidence that many highly multinational firms do not hedge with derivatives. We find that operational hedging and financial hedging are significantly inversely related to firms’ foreign exchange exposure, providing evidence that the two hedging techniques are complementary for all but the most highly operationally hedged firms. By comparing our findings for 1999–2006 with 1999–2009, we show that this complementarity breaks down when exchange rate volatility is high – as the effectiveness of financial hedging diminishes. An important message for firms is that operational hedges work, and they potentially provide better protection than financial hedging during times of stress. 2014 Journal Article http://hdl.handle.net/20.500.11937/44052 10.1016/j.jbankfin.2014.03.002 Elsevier BV, North Holland restricted |
| spellingShingle | foreign currency derivatives foreign exchange exposure operational hedging multinational firms Hutson, E. Laing, Elaine Foreign exchange exposure and multinationality |
| title | Foreign exchange exposure and multinationality |
| title_full | Foreign exchange exposure and multinationality |
| title_fullStr | Foreign exchange exposure and multinationality |
| title_full_unstemmed | Foreign exchange exposure and multinationality |
| title_short | Foreign exchange exposure and multinationality |
| title_sort | foreign exchange exposure and multinationality |
| topic | foreign currency derivatives foreign exchange exposure operational hedging multinational firms |
| url | http://hdl.handle.net/20.500.11937/44052 |