Risk Management by Multinational Corporations: A Test of The Underinvestment Hypothesis

33 Pages Posted: 20 Jul 2003

See all articles by Pete Crabb

Pete Crabb

Northwest Nazarene University

Date Written: November 2002

Abstract

This study analyzes foreign currency hedging activity of U.S. multinational firms to determine if these firms hedge exchange rate risk to overcome an underinvestment problem. Previous research on this problem shows that firms' investment opportunities help to explain exchange rate risk hedging. This study uses more detailed, geographically segmented, firm-level data on hedging activity to test further implications of the underinvestment problem model. Evidence from this sample supports the conclusion that multinational firms with asset exposure to exchange rates hedge more and firms coordinate hedging and investment decisions.

Keywords: Multinational Firms, Foreign Exchange

JEL Classification: F23, G15

Suggested Citation

Crabb, Peter R., Risk Management by Multinational Corporations: A Test of The Underinvestment Hypothesis (November 2002). Available at SSRN: https://ssrn.com/abstract=421580 or http://dx.doi.org/10.2139/ssrn.421580

Peter R. Crabb (Contact Author)

Northwest Nazarene University ( email )

623 S University Blvd
Nampa, ID 83686
United States
208 467-8536 (Phone)

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

Paper statistics

Downloads
489
Abstract Views
2,847
Rank
106,926
PlumX Metrics