Risk Management by Multinational Corporations: A Test of The Underinvestment Hypothesis
33 Pages Posted: 20 Jul 2003
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: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Risk Management: Coordinating Corporate Investment and Financing Policies
By Kenneth Froot, David S. Scharfstein, ...
-
Why Firms Use Currency Derivatives
By Christopher Geczy, Bernadette A. Minton, ...
-
The Use of Foreign Currency Derivatives and Firm Market Value
-
Exchange Rate Exposure, Hedging, and the Use of Foreign Currency Derivatives
-
Do Firms Hedge in Response to Tax Incentives?
By John R. Graham and Daniel A. Rogers
-
How Much Do Firms Hedge with Derivatives?
By Wayne R. Guay and S.p. Kothari
-
How Much Do Firms Hedge with Derivatives?
By Wayne R. Guay and S.p. Kothari
-
By John M. Griffin and René M. Stulz