Offshore Activities and Financial vs Operational Hedging

56 Pages Posted: 19 Jun 2014 Last revised: 8 Sep 2016

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Date Written: July 30, 2016

Abstract

A key question is why many multinational firms forgo foreign exchange derivative (FX) hedging and instead use operational hedging. We propose an explanation based on illiquidity and the unique advantages of operational hedges. We use 10-K filings to construct dynamically updated text-based measures of the offshore sale of output, purchase of input, and ownership of assets. We find that firms use FX derivatives when they are liquid and generally available. Otherwise, they often favor purchasing input from the same nations they sell output to, an operational hedge. Quasi-natural experiments based on new derivative product launches suggest a likely causal relation.

Keywords: Offshore Activities, Operational Hedging, Financial Hedging, Global Consumption Risk, 10-K Filings

JEL Classification: F14, F23, G14, G15, G32

Suggested Citation

Hoberg, Gerard and Moon, Katie, Offshore Activities and Financial vs Operational Hedging (July 30, 2016). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=2456323 or http://dx.doi.org/10.2139/ssrn.2456323

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://faculty.marshall.usc.edu/Gerard-Hoberg/

Katie Moon (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
742
Abstract Views
3,458
rank
42,973
PlumX Metrics