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Operational and financial hedging: Evidence from export and import behavior

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  • Kuzmina, Olga
  • Kuznetsova, Olga

Abstract

We use hand-collected data on a sample of German public firms during 2011-2014 to show that firms use currency derivatives more often when they export or import, and especially when exchange-rate fluctuations are larger, but to a lesser extent when having high export and import shares simultaneously. We interpret this finding as evidence of operational hedging that arises when foreign-denominated revenues and costs match, crowding out financial hedging. Our identification strategy uses both cross-sectional heterogeneity in exchange-rate exposures and time-series variation in exchange-rate fluctuations. The results highlight the importance of examining operating strategies as integral determinants of corporate financing policies.

Suggested Citation

  • Kuzmina, Olga & Kuznetsova, Olga, 2018. "Operational and financial hedging: Evidence from export and import behavior," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 109-121.
  • Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:109-121
    DOI: 10.1016/j.jcorpfin.2017.10.009
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    1. repec:far:spaeco:y:2019:i:2:p:75-91 is not listed on IDEAS

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    Keywords

    Hedging; Exporting; Operational hedging; Exchange-rate exposure;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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