Foreign Currency Hedging and Firm Value: A Dynamic Panel Approach

38 Pages Posted: 25 Jun 2008 Last revised: 16 Feb 2009

See all articles by Shane Magee

Shane Magee

Macquarie University Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 15, 2009

Abstract

I reinvestigate the effect of foreign currency hedging with derivatives on firm value. Consistent with prior research, my initial analysis suggests foreign currency hedging is associated with an increase in firm value. However, this analysis ignores the possibility that firm value may affect foreign currency hedging. I find foreign currency hedging depends on past amounts of firm value, and after controlling for this feedback effect, foreign currency hedging no longer affects firm value. This paper highlights the importance of controlling for the possibility of feedback from past amounts of firm value to the current amount of hedging when examining the effect of hedging on firm value.

Keywords: Corporate hedging, Derivatives, Endogeneity, Tobin's Q

JEL Classification: F30, G32

Suggested Citation

Magee, Shane, Foreign Currency Hedging and Firm Value: A Dynamic Panel Approach (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1150471 or http://dx.doi.org/10.2139/ssrn.1150471

Shane Magee (Contact Author)

Macquarie University Department of Applied Finance and Actuarial Studies ( email )

Room 732, Building E4A
Macquarie University
North Ryde, NSW, 2109
Australia
61-2-9850-9947 (Phone)

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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