Does Centralisation of FX Derivative Usage Impact Firm Value?

24 Pages Posted: 13 Mar 2015

See all articles by Håkan Jankensgård

Håkan Jankensgård

Lund University - Department of Business Administration; Knut Wicksell Centre for Financial Studies

Date Written: March 2015

Abstract

Previous research has shown that firms identified as derivative users tend to be valued at a premium relative to non‐users. In this paper I develop the hypothesis that the ‘derivative premium’ is higher in firms with centralised FX exposure management, compared to a decentralised approach in which subsidiaries retain bank contacts and/or decision‐making authority. This study benefits from unique survey data on the FX management practices and derivative usage of Swedish listed firms. The data supports the centralisation‐hypothesis. Firms with a centralised approach have a statistically significant derivative premium of around 15%, whereas there is no premium for decentralised firms.

Keywords: centralisation, risk management, currency risk, derivative, hedging

Suggested Citation

Jankensgård, Håkan, Does Centralisation of FX Derivative Usage Impact Firm Value? (March 2015). European Financial Management, Vol. 21, Issue 2, pp. 309-332, 2015. Available at SSRN: https://ssrn.com/abstract=2577040 or http://dx.doi.org/10.1111/eufm.12014

Håkan Jankensgård (Contact Author)

Lund University - Department of Business Administration ( email )

Box 117
SE-221 00 Lund, S-220 07
Sweden

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

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