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Does Multinationality Matter? Implications of Operational Hedging for the Exchange Risk Exposure

Jongmoo Jay Choi

Temple University

Cao Jiang

Holy Family University

September 25, 2009

Journal of Banking and Finance, Vol. 33, 2009

An important issue in global corporate risk management is whether the multinationality of a firm matters in terms of its effect on exchange risk exposure. In this paper, we examine the exchange risk exposure of U.S. firms during 1983-2006, comparing multinational and non-multinational firms and focusing on the role of operational hedging. Since MNCs and non-multinationals differ in size and other characteristics, we construct matched samples of MNCs and non-multinationals based on the propensity score method. We find that the multinationality in fact matters for a firm’s exchange exposure but not in the way usually presumed – the exchange risk exposures are actually smaller and less significant for MNCs than non-multinationals. The results are robust with respect to different samples and model specifications. There is evidence that operational hedging decreases a firm’s exchange risk exposure and increases its stock returns. The effective deployment of operational risk management strategies provides one reason why MNCs may have insignificant exchange risk exposure estimates.

Number of Pages in PDF File: 10

Keywords: Exchange risk exposure, Multinational corporations, Corporate risk management, Operational hedging, Financial hedging

JEL Classification: G3, F2

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Date posted: March 25, 2012  

Suggested Citation

Choi, Jongmoo Jay and Jiang, Cao, Does Multinationality Matter? Implications of Operational Hedging for the Exchange Risk Exposure (September 25, 2009). Journal of Banking and Finance, Vol. 33, 2009. Available at SSRN: http://ssrn.com/abstract=1478767

Contact Information

Jongmoo Jay Choi (Contact Author)
Temple University ( email )
Fox School of Business
Temple University
Philadelphia, PA 19122
United States
215-204-5084 (Phone)
215-204-1697 (Fax)
HOME PAGE: http://astro.temple.edu/~jjchoi
Cao Jiang
Holy Family University ( email )
9801 Frankford Avenue
Philadelphia, PA 19114
United States
Feedback to SSRN

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