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Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries

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  • Song, Sangcheol
  • Lee, Seung-Hyun
  • Makhija, Mona

Abstract

This study examines the environmental conditions under which multinational corporations (MNCs) engage in operational hedging behaviors to actualize their operational flexibility within their international network. We analyzed a Korean MNCs' database and found that MNCs engage in operational hedging through global intra-firm trade to counteract volatile and divergent exchange rates across countries. Additionally, we found that the MNCs' utilization of intra-firm trade and flexible responses to volatile and divergent cross-country exchange rates enhances their performance. Our findings support the real options lens perspective of the value of multinational operational flexibility under external uncertainty in an international business setting.

Suggested Citation

  • Song, Sangcheol & Lee, Seung-Hyun & Makhija, Mona, 2015. "Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries," Journal of World Business, Elsevier, vol. 50(3), pages 548-557.
    • Handle: RePEc:eee:worbus:v:50:y:2015:i:3:p:548-557
    DOI: 10.1016/j.jwb.2014.08.012
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    Cited by:

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    3. Christofi, Michael & Pereira, Vijay & Vrontis, Demetris & Tarba, Shlomo & Thrassou, Alkis, 2021. "Agility and flexibility in international business research: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 56(3).
    4. Lee, Hyoungjin & Chung, Chris Changwha, 2022. "Go small or go home: Operational exposure to violent conflicts and foreign subsidiary exit," Journal of World Business, Elsevier, vol. 57(6).
    5. Song, Sangcheol, 2021. "When do multinational corporations adjust production volume flexibly among in-network subsidiaries?," Journal of Business Research, Elsevier, vol. 135(C), pages 532-542.
    6. Qi, Jianhong & Liu, Hui & Zhang, Zhaoyong, 2021. "Exchange rate uncertainty and the timing of Chinese Outward Direct Investment," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 1193-1204.

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