Foreign Debt Usage in Non‐Financial Firms: A Horse Race between Operating and Accounting Exposure Hedging

22 Pages Posted: 2 Jun 2015

See all articles by Tom Aabo

Tom Aabo

Aarhus University

Marianna Hansen

Novozymes A/S

Yaz Gulnur Muradoglu

Queen Mary University of London; City University London - Sir John Cass Business School

Date Written: June 2015

Abstract

Previous studies show that foreign exchange exposure from international sales can be hedged by foreign debt. We go beyond the foreign sales measure by using a unique database with detailed exposure information on Danish non‐financial firms with international operations. Our results indicate that foreign debt is used to hedge foreign assets and subsidiaries (accounting exposure) as opposed to foreign sales (operating exposure). The paper adds to the literature on corporate hedging by highlighting the importance of accounting exposure in the hedging behavior of corporate managers and the perceived need to reduce risks due to currency mismatches between assets and liabilities.

Keywords: exchange rate exposure management, foreign debt, foreign assets, foreign subsidiaries, accounting exposure

Suggested Citation

Aabo, Tom and Hansen, Marianna and Muradoglu, Yaz Gulnur, Foreign Debt Usage in Non‐Financial Firms: A Horse Race between Operating and Accounting Exposure Hedging (June 2015). European Financial Management, Vol. 21, Issue 3, pp. 590-611, 2015. Available at SSRN: https://ssrn.com/abstract=2613177 or http://dx.doi.org/10.1111/j.1468-036X.2013.12032.x

Tom Aabo (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark
+45 87 16 48 39 (Phone)
+45 86 15 01 88 (Fax)

Marianna Hansen

Novozymes A/S ( email )

Krogshoejvej 36
Bagsvaerd, 2880
Denmark

Yaz Gulnur Muradoglu

Queen Mary University of London ( email )

Francis Bancroft Building
Mile End Road
London, E1 4NS
United Kingdom

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 0124 (Phone)
+44 20 7040 8853 (Fax)

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