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Foreign currency derivative use and shareholder value

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  • Belghitar, Yacine
  • Clark, Ephraim
  • Mefteh, Salma

Abstract

This paper investigates the effect of foreign currency (FC) derivative use on shareholder value. Exposures are broken down by currency, by whether the currency is appreciating or depreciating and by whether exposures are symmetric or asymmetric. We find that derivatives are effective in reducing overall FC exposure but there is no evidence of value creation through the application of a program that identifies and targets only loss causing exposures. We also find that FC derivative use has no significant effect on firm value in the overall sample and when the sample is broken down by exposure type and derivative product.

Suggested Citation

  • Belghitar, Yacine & Clark, Ephraim & Mefteh, Salma, 2013. "Foreign currency derivative use and shareholder value," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 283-293.
  • Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:283-293
    DOI: 10.1016/j.irfa.2012.02.004
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    Cited by:

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    2. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    3. Nevi Danila & Chia-Hsing Huang, 2016. "The determinants of exchange rate risk management in developing countries: evidence from Indonesia," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 6(1), pages 53-67.
    4. Hadian, Azadeh & Adaoglu, Cahit, 2020. "The effects of financial and operational hedging on company value: The case of Malaysian multinationals," Journal of Asian Economics, Elsevier, vol. 70(C).
    5. Gamze Ozturk Danisman & Pelin Demirel, 2019. "Corporate risk management practices and firm value in an emerging market: a mixed methods approach," Risk Management, Palgrave Macmillan, vol. 21(1), pages 19-47, March.
    6. Jiaqi Jiang & Yun Feng, 2021. "The interaction of risk management tools: Financial hedging, corporate diversification and liquidity," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2396-2413, April.
    7. Bessler, Wolfgang & Conlon, Thomas & Huan, Xing, 2019. "Does corporate hedging enhance shareholder value? A meta-analysis," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 222-232.
    8. Kim, Huong Trang & Papanastassiou, Marina & Nguyen, Quang, 2017. "Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 39-59.
    9. Jerome Geyer-Klingeberg & Markus Hang & Andreas W. Rathgeber & Stefan Stöckl & Matthias Walter, 2018. "What do we really know about corporate hedging? A meta-analytical study," Business Research, Springer;German Academic Association for Business Research, vol. 11(1), pages 1-31, February.
    10. Hong V. Nguyen, 2018. "Hedging and hedging effectiveness under required disclosures: a study of the impact of derivatives use on capital investment," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(3), pages 471-491, July.
    11. Streit, Daniel, 2016. "Firm-level effects of asymmetric intervention in foreign exchange markets: Evidence from the Swiss currency floor," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 289-312.
    12. Huang, Pinghsun & Kabir, M. Humayun & Zhang, Yan, 2017. "Does Corporate Derivative Use Reduce Stock Price Exposure? Evidence From UK Firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 128-136.

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    More about this item

    Keywords

    Foreign currency exposure; Asymmetric exposure; Foreign currency hedging; Derivatives; Firm value;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • 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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