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Foreign currency risk hedging and firm value in China

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  • Luo, Hang (Robin)
  • Wang, Rui

Abstract

The objective of our study is to investigate the association between the use of foreign currency derivatives and corporate value among Chinese firms by examining listed firms’ quarterly data from 2000 to 2013. We find that Chinese firms that engage in hedging activities with derivatives to reduce their foreign exchange exposure tend to have higher corporate value. This finding is shown to be consistent through a series of robustness tests. We also find that the incidence of such effects is higher among firms with greater profitability and investment opportunities. The use of foreign currency derivatives exerts a more prominent impact on firm value when the exchange rate depreciates and when the economy is booming. However, the link between derivative use and firm value is weaker during crisis periods. Moreover, an industrial analysis demonstrates that the value-enhancing effect varies across industries.

Suggested Citation

  • Luo, Hang (Robin) & Wang, Rui, 2018. "Foreign currency risk hedging and firm value in China," Journal of Multinational Financial Management, Elsevier, vol. 47, pages 129-143.
    • Handle: RePEc:eee:mulfin:v:47-48:y:2018:i::p:129-143
    DOI: 10.1016/j.mulfin.2018.11.002
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    Cited by:

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    2. Choi, Young Mok & Park, Kunsu & Kim, Woo Sung, 2020. "Corporate hedging and dividend policy: An empirical study of Korean firms," Finance Research Letters, Elsevier, vol. 32(C).
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    4. Jyoti Prakash Das & Shailendra Kumar, 2023. "Impact of corporate hedging practices on firm's value: An empirical evidence from Indian MNCs," Risk Management, Palgrave Macmillan, vol. 25(2), pages 1-35, June.
    5. Hao, Xiangchao & Sun, Qinru & Xie, Fang, 2022. "International evidence for the substitution effect of FX derivatives usage on bank capital buffer," Research in International Business and Finance, Elsevier, vol. 62(C).

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    More about this item

    Keywords

    Derivatives; Exchange rate; Firm value; Hedging; Value-enhancing effect; China;
    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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