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Hedging with derivatives and firm value: The role of geographic diversification

Siwasuphakan, Wongsathon LU and Ma, Ruitao LU (2024) NEKN02 20241
Department of Economics
Abstract
This paper explores the relationship between geographical diversification and derivative hedging,
as well as their impact on corporate value. We employed multivariate regression analysis using a
sample of 211 publicly listed U.S. companies on the S&P 500 index from 2019 to 2023 to examine
this relationship. Our focus is foreign exchange hedging and the interaction between hedging and
firm value for diversified firms. However, interest rate and commodity risk are critical for
diversified firms due to their impact on costs, financial performance, and market competitiveness,
impacting the firm value. Thus, we control interest rate and commodity hedging as well as other
variables, including cash ratio, firm size, leverage, growth... (More)
This paper explores the relationship between geographical diversification and derivative hedging,
as well as their impact on corporate value. We employed multivariate regression analysis using a
sample of 211 publicly listed U.S. companies on the S&P 500 index from 2019 to 2023 to examine
this relationship. Our focus is foreign exchange hedging and the interaction between hedging and
firm value for diversified firms. However, interest rate and commodity risk are critical for
diversified firms due to their impact on costs, financial performance, and market competitiveness,
impacting the firm value. Thus, we control interest rate and commodity hedging as well as other
variables, including cash ratio, firm size, leverage, growth opportunities, profitability, and
dividends, to prevent research bias. Our findings suggest a positive effect between foreign
exchange hedging and firm value, but negative effect between interest rate and commodity hedging
and firm value which indicates that the effect of hedging on firm value depends on the categories
of risk hedges. This implies that the foreign exchange hedging can enhance the firm value, but the
interest rate and commodity hedging reduce the firm value. Lastly, this study finds evidence that
diversification moderates the impact of foreign exchange hedging on firm value. (Less)
Please use this url to cite or link to this publication:
author
Siwasuphakan, Wongsathon LU and Ma, Ruitao LU
supervisor
organization
course
NEKN02 20241
year
type
H1 - Master's Degree (One Year)
subject
keywords
Corporate risk management, Corporate hedging, Firm value, Foreign exchange hedging, Geographic diversification
language
English
id
9156517
date added to LUP
2024-08-12 15:58:18
date last changed
2024-08-12 15:58:18
@misc{9156517,
  abstract     = {{This paper explores the relationship between geographical diversification and derivative hedging, 
as well as their impact on corporate value. We employed multivariate regression analysis using a 
sample of 211 publicly listed U.S. companies on the S&P 500 index from 2019 to 2023 to examine 
this relationship. Our focus is foreign exchange hedging and the interaction between hedging and 
firm value for diversified firms. However, interest rate and commodity risk are critical for 
diversified firms due to their impact on costs, financial performance, and market competitiveness, 
impacting the firm value. Thus, we control interest rate and commodity hedging as well as other 
variables, including cash ratio, firm size, leverage, growth opportunities, profitability, and 
dividends, to prevent research bias. Our findings suggest a positive effect between foreign 
exchange hedging and firm value, but negative effect between interest rate and commodity hedging 
and firm value which indicates that the effect of hedging on firm value depends on the categories 
of risk hedges. This implies that the foreign exchange hedging can enhance the firm value, but the 
interest rate and commodity hedging reduce the firm value. Lastly, this study finds evidence that 
diversification moderates the impact of foreign exchange hedging on firm value.}},
  author       = {{Siwasuphakan, Wongsathon and Ma, Ruitao}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Hedging with derivatives and firm value: The role of geographic diversification}},
  year         = {{2024}},
}