Foreign Currency Exposure and Hedging: Evidence from Foreign Acquisitions
28 Pages Posted: 7 Apr 2008 Last revised: 23 Dec 2019
Date Written: July 2013
We study the exchange rate exposures of a sample of firms that undertake large acquisitions of foreign companies. Using data from SEC filings on their foreign operations and derivatives usage, we examine how the exposures change from before to after the acquisition. We find that these deals generally lead to reduced currency exposure, which reflects the fact that most of the firms already have business in the target’s country and the mergers serve as operational hedges. In contrast, we do not find a statistically significant effect for hedging with currency derivatives despite the fact that many of the firms in the sample use such instruments.
Keywords: Exchange Rates, Exposure, Hedging, Derivatives, Mergers, Acquisitions
JEL Classification: G3, F4, F3
Suggested Citation: Suggested Citation