Financial Hedging and Firm Performance: Evidence from Cross‐Border Mergers and Acquisitions

Abstract

Using a sample of 1,369 cross‐border acquisitions announced by Standard & Poor's 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than non‐users, which translates into a US$ 193.7 million shareholder gain for an average‐sized acquirer. In addition, we find that acquirers with hedging programmes have higher deal completion probabilities, longer deal completion times, and better long‐term post‐deal performance. We confirm our findings after employing an extensive array of models to address 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