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Determinants and effects of corporate currency hedging

Haavaldsen, Eirik; Årstad, Hans Fredrik Ø.
Master thesis
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URI
http://hdl.handle.net/11250/168809
Date
2010
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  • Master Thesis [3748]
Abstract
The main purpose of this thesis is to examine whether firms’ engagement in hedging activities

is rewarded in terms of higher firm value. In the process of answering this question we have

also conducted two additional analyses. The first one indicates common characteristics of

firms that hedge while the second seek to answer whether hedging reduce the exposure to

currency fluctuations.

According to our results there is no sign that hedging is rewarded by investors. In fact, we find

that hedging firms are valued at a lower market value to book value ratio. Our second analysis

indicates that large firms hedge more than small, and that those with a high share of foreign

revenue are more likely to hedge. Furthermore, firms with more large owners (above 5%

stake) are less likely to hedge. Finally, our third analysis shows the effectiveness of hedging

derivatives as users of these are less exposed to fluctuations in foreign exchange rates.

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