Does multinationality matter? Implications of operational hedging for the exchange risk exposure

Choi, Jongmoo Jay; Jiang, Cao

doi:10.1016/j.jbankfin.2009.04.014

Cited by 70 publications

(52 citation statements)

References 65 publications

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“…Likewise, Choi and Jiang (2009) find that MNCs face smaller and less significant exchange rate exposure than non-MNCs. These advantages increase the competitive edge of MNCs over domestic firms and enable MNCs to use derivatives to reduce exposure to country and market risks better than domestic firms.…”

Section: Epu and Derivatives Usementioning

confidence: 81%

“…Extant studies (e.g., Hughes, Logue, & Sweeney, 1975;Fatemi, 1984;Michel and Shaked, 1986) show evidence that internationalization enables MNCs to have lower systematic risk, idiosyncratic risk, and total risk than domestic firms. Along this line, Allayannis and Ofek (2001) and Choi and Jiang (2009) find that MNCs may possess a superior capability to reduce exposure to market risks by means of derivatives. Dunning and Rugman (1985) further indicate that MNCs have a greater degree of freedom than domestic firms.…”

Section: Epu and Derivatives Usementioning

confidence: 99%

“…Operational hedging Empirical research documents that many firms actively manage exposure to market risks through the use of operational hedging (Choi & Jiang, 2009;Pantzalis et al, 2001;Berghöfer & Lucey, 2014) -as in Pantzalis et al (2001) -so it is necessary to control for operational hedging to understand firm exposure. We use the dummy variable GEOMARKT, which has a value of one for firms that have sales This table shows the number of firms and the percentage of firms that use derivatives by country, by derivatives use information, and by year for all firms.…”

Section: Firm Specificsmentioning

confidence: 99%

“…Recent studies have identified that smaller firms are more subject to market risk exposure than larger firms (Pantzalis et al, 2001;Hutson & Stevenson, 2010), and MNCs are associated with smaller and less significant exchange rate exposure than nonMNCs (Choi & Jiang, 2009). Thus, we use the natural logarithm of the book value of total assets as a proxy for firm size.…”

Section: Firm Sizementioning

confidence: 99%

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Policy uncertainty, derivatives use, and firm-level FDI

2017

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We explore the link between uncertainty in economic policy, firm-level FDI, and firm hedging behavior -building upon a newspaper-based index of economic policy uncertainty (EPU). We find that the relative difference in EPU between home and host country has a significant relationship with FDI. Firms increase their FDI level in countries, which have a low level of EPU relative to their home country. In addition, firms use derivatives more intensively in response to an increase in EPU. Interestingly, the link between EPU and corporate derivatives use varies according to the type of firm. Domestic MNCs make the most effective use of derivatives to hedge against EPU exposure. Journal of International Business Studies (2018) 49, 96-126.

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Section: Epu and Derivatives Usementioning

confidence: 81%

Section: Epu and Derivatives Usementioning

confidence: 99%

Section: Firm Specificsmentioning

confidence: 99%

Section: Firm Sizementioning

confidence: 99%

See 2 more Smart Citations

Policy uncertainty, derivatives use, and firm-level FDI

2017

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“…This has the effect of combining different kinds of firm into a broad category labelled 'MNE', and the resulting sample is used to test hypotheses about the nature, objectives, strategies and performance of MNEs. This issue is also discussed in Pantzalis (2001) and Choi and Jiang (2009). We overcome this problem by introducing a classification system for the degree of firm-level multinationality.…”

Section: Page 4 Of 43mentioning

confidence: 91%

Firm-level internationalisation and the home bias puzzle

Berrill

Kearney

2010

Journal of Economics and Business

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The extent to which internationalising MNEs create value, and the extent to which investors can reap the benefits of firm-level internationalisation remain controversial issues. Using a multi-country dataset with over 3 million observations, we classify 1,143 firms listed on the exchanges of the G7 countries according to the geographical spread of their sales and subsidiaries. We show that more internationalised firms provide greater diversification benefits. By investing in home-based internationalised firms, investors can 'free ride' the costs and risks associated with internationalisation at the level of the firm and exhibit home bias while availing of international diversification benefits.

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Flexibility as firm value driver: Evidence from offshore outsourcing

Choi

Kotabe

et al. 2017

Global Strategy Journal

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Research Summary This article tests real options theory predictions that uncertainty and flexibility are key value drivers for offshore outsourcing moderated by switching costs. Examining firm‐specific and market data for outsourcing cases by U.S. firms, we find that the impact of market and environmental uncertainty and flexibility on outsourcing value is net positive and that it is greater for offshore than for domestic outsourcing. Outsourcing benefits are related to flexibility arising from growth options and moderated by switching costs underlying outsourcing activities, including loss of innovative capability and economic, institutional, and cross‐country cultural differences. Managerial Summary In the popular business literature, the “footloose” nature of outsourcing strategy characterized by an outsourcing firm's flexibility, as well as the ability in finding appropriate suppliers on a global basis, has often been touted as an important means of dealing with market uncertainty. However, the academic literature has not offered direct empirical support for the inherent value of such outsourcing strategies. Our study shows that firms tend to perform better financially when they have such outsourcing flexibility under uncertain market and environmental conditions, although this relationship may be somewhat weakened by potential loss of innovative capability and cultural and other differences in dealing with foreign suppliers.

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Does multinationality matter? Implications of operational hedging for the exchange risk exposure

Cited by 70 publications

References 65 publications

Policy uncertainty, derivatives use, and firm-level FDI

Policy uncertainty, derivatives use, and firm-level FDI

Firm-level internationalisation and the home bias puzzle

Flexibility as firm value driver: Evidence from offshore outsourcing

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