Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

Pantzalis, Christos; Simkins, Betty J.; Laux, Paul A.

doi:10.1057/palgrave.jibs.8490995

Cited by 205 publications

(172 citation statements)

References 18 publications

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“…We distinguish between two types of domestic firms, i.e., between uninational domestic firmsfirms with no overseas investments -and domestic MNCs -firms that are part of a domestically owned MNC. Similarly, foreign affiliates are the incoming MNCs with a parent company based elsewhere in the world (Pantzalis, Simkins, & Laux, 2001;Castellani, & Zanfei, 2006).…”

Section: Epu and Derivatives Usementioning

confidence: 99%

“…Dunning and Rugman (1985) further indicate that MNCs have a greater degree of freedom than domestic firms. For example, while domestic firms have to rely on limited financial instruments to hedge their exposure, MNCs have opportunities to engage in additional hedging tools (Pantzalis et al, 2001).…”

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: 99%

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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“…For example, Pantzalis, Simkins and Laux (2001) investigated the effects of operational hedges on US multinational companies and their exchange rate exposure. They found strong evidence that the firm's ability to build operational hedges is measured by determinants (e.g., breadth and depth of MNC network ) that affect the firm's exchange rate risk exposure.…”

Section: The Determinants Of Exchange Rate Exposurementioning

confidence: 99%

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Alssayah¹,

Krishnamurti²

2013

IJEF

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The purpose of this study is to examine the foreign exchange rate exposure of domestic corporations in the United Arab Emirates (UAE) and the implications of that exposure for the market value of those corporations, considering the effect of competition as a determinant of exchange rate exposure. The justification for this study is that the UAE has an open economy with a high per capita income and a sizable annual trade surplus. In addition, the World Economic Forum issued its Global Competitiveness report for the year 2010-2011 in which the UAE was the only Arab country that was included in the elite club of countries that have shown an increment in endorsing new and improved methods for developing their economies. However, because of the indirect nature of foreign exchange rate exposure for local or domestic firms, the managers of these firms are unwilling to engage in hedging activities that may mitigate exchange rate exposure. A change in prices, the cost of final goods, the cost of raw material, labor costs or the costs of input or output and other substitute goods due to fluctuating exchange rates may have an adverse effect on the competitive position of a local or domestic firm with no international and foreign activities. The outcomes of this study will determine whether the domestic firms are exposure to the fluctuation of foreign exchange rates.Keywords: exchange rate exposure, foreign exchange risk, determinants of exchange rate exposure

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Exchange rate exposure of agricultural cooperatives

Piccoli

2019

Agribusiness

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Despite the growth of exchange risk literature in the field of agricultural economics, little attention has been paid to firm‐level currency exposure in emerging countries. In this context, this paper investigates the exchange rate exposure faced by a unique data set of 66 Brazilian agricultural cooperatives from 2000 to 2015, and finds that around one‐third of the sampled firms exhibited significant exposure during this period, even after controlling for crises. The paper also documents that the proportion of exposed firms doubles during periods in which the local central bank intervenes more in the currency regime, lending support to the moral hazard hypothesis: when the exchange rate is less flexible, local companies tend to adopt unhedged positions in response to implicit government guarantees. Finally, firms with more debt, better asset management, lower inventory levels, and higher product differentiation tend to be less exposed to currency swings [EconLit Citations: F31, G15, G23].

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Operational Hedges and the Foreign Exchange Exposure of U.S. Multinational Corporations

Cited by 205 publications

References 18 publications

Policy uncertainty, derivatives use, and firm-level FDI

Policy uncertainty, derivatives use, and firm-level FDI

Theoretical Framework of Foreign Exchange Exposure, Competition and the Market Value of Domestic Corporations

Exchange rate exposure of agricultural cooperatives

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