The Determinants of Foreign Currency Hedging by U.K. Non-Financial Firms

41 Pages Posted: 30 Jun 2015

See all articles by Amrit Judge

Amrit Judge

Middlesex University - Business School

Date Written: June 30, 2015

Abstract

For 366 large non-financial U.K. firms, this paper reports the factors that are important in determining their decision to hedge foreign currency exposure. The results provide strong evidence of a relationship between expected financial distress costs and the foreign currency hedging decision and more significantly the foreign currency only hedging decision. These findings seem stronger than those found in similar studies using U.S. data. The paper argues that this might be due to the fact that several U.S. studies include in their non-hedging sample other hedging firms, such as firms using non-derivative methods for currency hedging and interest rate only hedgers, which might bias the results against the a priori expectations. However, it might also be due to a country specific institutional factor, that is, U.K. firms face higher expected costs of financial distress due to differences in the bankruptcy codes in the two countries.

Keywords: corporate hedging; foreign currency hedging; derivatives, financial distress; foreign currency debt; bankruptcy codes

JEL Classification: F30, G32, G33

Suggested Citation

Judge, Amrit, The Determinants of Foreign Currency Hedging by U.K. Non-Financial Firms (June 30, 2015). Multinational Finance Journal, Vol. 10, No. 1/2, p. 1-41, 2006, Available at SSRN: https://ssrn.com/abstract=2625032

Amrit Judge (Contact Author)

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom
020 8411 6344 (Phone)
020 8411 4739 (Fax)

HOME PAGE: http://mubs.mdx.ac.uk/Staff/Personal_pages/Amrit1/index.htm

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
324
Abstract Views
1,416
Rank
170,482
PlumX Metrics