Foreign debt and financial hedging: Evidence from Australia |
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| Affiliation: | 1. Department of Finance, TransWorld University, No. 1221, Zhennan Rd., Douliu City, Yunlin County 640, Taiwan, ROC;2. Department of Finance, National Yunlin University of Science & Technology, Yunlin, Taiwan, ROC;1. Indian Institute of Technology Kanpur, Kanpur, UP 208016, India;2. School of Business, Western Sydney University, Locked Bag 1797, Penrith, NSW 2751, Australia;1. School of International and Public Affairs, Columbia University, IAB Rm 927, MC 3333, 420 West 118th St., New York, NY 20017, USA;2. National Graduate Institute for Policy Studies;3. Faculty of Commerce, Chuo University, 742-1 Higashinakano Hachioji-shi, Tokyo 192-0393, Japan;4. Department of Economics, Yokohama National University, 79-1 Tokiwadai, Hodogaya-ku, Yokohama 240-8501, Japan;5. Faculty of Economics, Gakushuin University, 1-5-1 Mejiro, Toshima-ku, Tokyo 171-8588, Japan |
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| Abstract: | We investigate the role of foreign currency denominated debt (FCDD) as a natural hedging instrument using a sample of Australian firms. Our results show that the incidence of foreign debt use among industrial sector firms is associated with a lower level of exchange rate exposure. The practice of issuing foreign debt within the industrial sector also conforms better to the hypothesis that firms do so to satisfy a demand for hedging. In contrast, although the incidence of foreign debt issues is higher in the resource/mining sector, the underlying motive for such arises from a demand for financing. |
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