Foreign Currency Hedging and Firm Value: A Dynamic Panel Approach

36 Pages Posted: 17 Nov 2008 Last revised: 28 Jan 2009

See all articles by Shane Magee

Shane Magee

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

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Date Written: October 20, 2008

Abstract

I reinvestigate the effect of foreign currency hedging 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 (October 20, 2008). 21st Australasian Finance and Banking Conference 2008. Available at SSRN: https://ssrn.com/abstract=1227905 or http://dx.doi.org/10.2139/ssrn.1227905

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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