The Use of Foreign Currency Derivatives and Firm Market Value

Posted: 29 Oct 2000

See all articles by George Allayannis

George Allayannis

University of Virginia - Darden School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

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Abstract

This paper examines the use of foreign currency derivatives (FCDs)in a sample of 720 large U.S. nonfinancial firms between 1990 and 1995 and its potential impact on firm value. Using Tobin's Q as a proxy for firm value, we find a positive relation between firm value and the use of FCDs. The hedging premium is statistically and economically significant for firms with exposure to exchange rates and is on average 4.87 percent of firm value. We also find some evidence consistent with the hypothesis that hedging causes an increase in firm value.

JEL Classification: G15, G30

Suggested Citation

Allayannis, George and Weston, James Peter, The Use of Foreign Currency Derivatives and Firm Market Value. Review of Financial Studies. Available at SSRN: https://ssrn.com/abstract=240788

George Allayannis (Contact Author)

University of Virginia - Darden School of Business ( email )

Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3434 (Phone)

HOME PAGE: http://faculty.darden.edu/allayannisy

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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