Financial Hedging and Firm Performance: Evidence from Cross-Border Mergers and Acquisitions
European Financial Management, Forthcoming
76 Pages Posted: 26 Feb 2016 Last revised: 30 Mar 2018
Date Written: February 13, 2016
This paper studies the impact of financial hedging on firm performance in cross-border mergers and acquisitions (M&As). Using a sample of 1,369 acquisitions announced by S&P 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than nonusers, which translates into a $193.7 million shareholder gain for an average-sized acquirer. In addition, we find that acquirers with hedging programs have higher deal completion probabilities, longer deal completion time, and better long-term post-deal performance. We confirm our findings after employing an extensive array of models to address the potential endogeneity. Overall, our results provide new insights into a link between corporate financial hedging and firm performance.
Keywords: Cross-border M&As; Risk Management; Financial Derivatives
JEL Classification: F31; G13; G32; G34
Suggested Citation: Suggested Citation