Determinants and effects of corporate currency hedging

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.