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

See all articles by Zhong Chen

Zhong Chen

King's Business School, King's College London

Bo Han

Central Washington University

Yeqin Zeng

Durham University Business School, Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 13, 2016

Abstract

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

Chen, Zhong and Han, Bo and Zeng, Yeqin, Financial Hedging and Firm Performance: Evidence from Cross-Border Mergers and Acquisitions (February 13, 2016). European Financial Management, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2737950 or http://dx.doi.org/10.2139/ssrn.2737950

Zhong Chen

King's Business School, King's College London ( email )

Bush House
London, WC2B 4BG
United Kingdom

Bo Han

Central Washington University ( email )

400 E. University Way
Ellensburg, WA 98926
United States

Yeqin Zeng (Contact Author)

Durham University Business School, Finance and Economics ( email )

Office 162 Durham University Business School
Mill Hill Lane
Durham, DH1 3LB
United Kingdom

HOME PAGE: http://https://sites.google.com/site/yeqinzenghomepage/

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