Exchange Rate Risk Hedging and Firm Value: Evidence of Chinese’s MNCs
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| Title | Exchange Rate Risk Hedging and Firm Value: Evidence of Chinese’s MNCs
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| Author | Fei Guo |
| Organization | School of Accounting, Zhongnan University of Economics and Law |
| Email | guofei99@gmail.com |
| Key Words | Exchange rate risk; hedging; foreign currency derivatives; foreign currency debt; firm value |
| Abstract | Since the reform of Chinese currency regime started in July 2005, the volatility of RMB exchange rate has increased dramatically. Many Chinese MNCs use foreign currency derivatives to hedge exchange rate risk，however, the relationship between the hedging and firm value has not been examined empirically. Based on a sample of 968 Chinese MNCs between 2007 and 2009, I find a positive relationship between derivatives usage and firm value, proxied by Tobin’s Q. The hedging premium is statistically and economically significant and is on average 10% of firm value. This finding has important policy implications for the development of currency derivatives market in China. |
| Serial Number | WP114 |
| Time | 2011-10-27 |
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