Why firms hedge with currency derivatives: an examination of transaction and translation exposure
AbstractThis article examines Swedish firms' use of currency derivatives to provide empirical evidence on the determinants of firms' hedging decisions. The study uses survey data in combination with publicly available data.The use of survey data makes it possible to differentiate between currency derivative usage aimed at hedging translation exposure and that aimed at hedging transaction exposure. This is of interest since translation exposure and transaction exposure tend to affect firms differently. The results are consistent with the conjecture that firms hedge transaction exposure with currency derivatives to increase firm value by reducing indirect costs of financial distress or alleviating the underinvestment problem. No evidence is found to support the notion that translation exposure hedges are used to increase firm value.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Financial Economics.
Volume (Year): 13 (2003)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.tandf.co.uk/journals/routledge/09603107.html
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Fabling, Richard & Grimes, Arthur, 2008. "Do Exporters Cut the Hedge? Who Hedges, When and Why?," Occasional Papers 08/2, Ministry of Economic Development, New Zealand.
- Donald Lien & Fathali Firoozi, 2008. "Offshore Bidding and Currency Futures," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 7(2), pages 125-136, August.
- Hagelin, Niclas & Pramborg, Bengt, 2006. "Empirical evidence concerning incentives to hedge transaction and translation exposures," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 142-159, April.
- Anderson, Brian P. & Makar, Stephen D. & Huffman, Stephen H., 2004. "Exchange rate exposure and foreign exchange derivatives: do ineffective hedgers modify future derivatives use?," Research in International Business and Finance, Elsevier, vol. 18(2), pages 205-216, June.
- Pramborg, Bengt, 2004. "Derivatives hedging, geographical diversification, and firm market value," Journal of Multinational Financial Management, Elsevier, vol. 14(2), pages 117-133, April.
- Niclas Hagelin & Bengt Pramborg, 2004. "Empirical evidence on the incentives to hedge transaction and translation exposure," Finance 0407020, EconWPA.
- Hagelin, Niclas & Pramborg, Bengt, 2005. "Foreign exchange exposure, risk management, and quarterly earnings announcements," Journal of Multinational Financial Management, Elsevier, vol. 15(1), pages 15-30, February.
- Bj�rn D�hring, 2008. "Hedging and invoicing strategies to reduce exchange rate exposure - a euro-area perspective," European Economy - Economic Papers 299, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- Jorge A. Chan-Lau, 2005. "Hedging Foreign Exchange Risk in Chile: Markets and Instruments," IMF Working Papers 05/37, International Monetary Fund.
- Pramborg, Bengt, 2005. "Foreign exchange risk management by Swedish and Korean nonfinancial firms: A comparative survey," Pacific-Basin Finance Journal, Elsevier, vol. 13(3), pages 343-366, June.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.