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Do firms hedge with foreign currency derivatives for employees?

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  • Huang, Pinghsun
  • Huang, Hsin-Yi
  • Zhang, Yan

Abstract

Using a sample of 3004 US firm-years with foreign sales, we provide the first evidence that a firm's employee treatment score is an important determinant of its fraction of foreign sales hedged with currency-based derivatives. The positive relation between employee treatment rating and currency hedging activity is driven by firms operating in competitive industries, businesses with relatively unique products or assets, and companies adopting aggressive business strategies. These results suggest that firms with foreign sales tend to factor employee benefits in their currency hedging policies when their acquisition, development, and retention of human capital are especially costly or highly valued.

Suggested Citation

  • Huang, Pinghsun & Huang, Hsin-Yi & Zhang, Yan, 2019. "Do firms hedge with foreign currency derivatives for employees?," Journal of Financial Economics, Elsevier, vol. 133(2), pages 418-440.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:2:p:418-440
    DOI: 10.1016/j.jfineco.2019.01.008
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    More about this item

    Keywords

    Currency hedging; Employee treatment; Human capital;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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