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

10 Pages Posted: 25 Mar 2012

See all articles by Jongmoo Jay Choi

Jongmoo Jay Choi

Temple University; National Bureau of Economic Research (NBER); Temple University - International Business

Cao Jiang

Wenzhou-Kean University

Date Written: September 25, 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.

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

JEL Classification: G3, F2

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:

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)


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Temple University - International Business ( email )

Philadelphia, PA 19122
United States

Cao Jiang

Wenzhou-Kean University ( email )

Zhejiang Province

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