The use of foreign currency derivatives and firm market value |
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Authors: | Allayannis, G Weston, JP |
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Affiliation: | Darden Graduate School of Business Administration, University of Virginia, PO Box 6550, Charlottesville, VA 22906-6550, USA 1 Rice University z Corresponding author E-mail: allayannisy@darden.virginia.edu |
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Abstract: | This article examines the use of foreign currency derivatives(FCDs) in a sample of 720 large U.S. nonfinancial firms between1990 and 1995 and its potential impact on firm value. UsingTobin's Q as a proxy for firm value, we find a positive relationbetween firm value and the use of FCDs. The hedging premiumis statistically and economically significant for firms withexposure to exchange rates and is on average 4.87% of firm value.We also find some evidence consistent with the hypothesis thathedging causes an increase in firm value. |
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