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Does Hedging Increase Firm Value?

Nguyen, Ngan LU (2015) BUSN88 20151
Department of Business Administration
Abstract
In an uncertain financial world, corporate risk management has become an important element of a firm’s overall business strategy. The ability to manage risk will help companies act more confidently on future business decisions. Their knowledge of the risks they are facing will give them various options on how to deal with potential problems. One of the most popular risk management programs that firm adopts is to hedge against the future’s fluctuations of income due to the changes in currency exchange rate or interest rate risk. Despite an increasing interest in developing theoretical studies about the reasons why firms involved in risk management, however, only a handful of studies that address the issue whether risk management can enhance... (More)
In an uncertain financial world, corporate risk management has become an important element of a firm’s overall business strategy. The ability to manage risk will help companies act more confidently on future business decisions. Their knowledge of the risks they are facing will give them various options on how to deal with potential problems. One of the most popular risk management programs that firm adopts is to hedge against the future’s fluctuations of income due to the changes in currency exchange rate or interest rate risk. Despite an increasing interest in developing theoretical studies about the reasons why firms involved in risk management, however, only a handful of studies that address the issue whether risk management can enhance the firm value. The purpose of this project research is to fill this gap and investigate the impact of hedging on firm value.

Using Tobin’s Q as an approximation for firm market value and hedging as a control variable, I examined 90 Swedish firms listed on the Stockholm Stock Exchange, having the total assets exceeds at least 1 billion Euros. The results of the regression analysis show insignificant indication that the usage of hedging impacts firm value positively. The findings of this research imply that there is no evidence that support the hypothesis that hedging causes an increase in firm value. (Less)
Please use this url to cite or link to this publication:
author
Nguyen, Ngan LU
supervisor
organization
alternative title
An Examination of Swedish Companies
course
BUSN88 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
corporate hedging, firm value, risk management, derivative
language
English
id
5474041
date added to LUP
2015-06-16 11:55:48
date last changed
2015-06-16 11:55:48
@misc{5474041,
  abstract     = {In an uncertain financial world, corporate risk management has become an important element of a firm’s overall business strategy. The ability to manage risk will help companies act more confidently on future business decisions. Their knowledge of the risks they are facing will give them various options on how to deal with potential problems. One of the most popular risk management programs that firm adopts is to hedge against the future’s fluctuations of income due to the changes in currency exchange rate or interest rate risk. Despite an increasing interest in developing theoretical studies about the reasons why firms involved in risk management, however, only a handful of studies that address the issue whether risk management can enhance the firm value. The purpose of this project research is to fill this gap and investigate the impact of hedging on firm value. 

Using Tobin’s Q as an approximation for firm market value and hedging as a control variable, I examined 90 Swedish firms listed on the Stockholm Stock Exchange, having the total assets exceeds at least 1 billion Euros. The results of the regression analysis show insignificant indication that the usage of hedging impacts firm value positively. The findings of this research imply that there is no evidence that support the hypothesis that hedging causes an increase in firm value.},
  author       = {Nguyen, Ngan},
  keyword      = {corporate hedging,firm value,risk management,derivative},
  language     = {eng},
  note         = {Student Paper},
  title        = {Does Hedging Increase Firm Value?},
  year         = {2015},
}