THE EFFECT OF CURRENCY HEDGING AND CORPORATE GOVERNANCE ON FIRM MARKET VALUE: Empirical Evidence from 2011-2015
Kivinen, Jasse (2017)
2017
Kuvaus
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Tiivistelmä
The purpose of this study is to examine the combined effect of foreign currency derivatives hedging and corporate governance on firm market value. The unconditional effect of currency derivatives hedging has been widely studied with contradictory results. However, the main assumption is that foreign currency derivatives hedging is associated with higher firm values. Also, the connection between corporate governance and firm value has been widely studied, showing mainly value premiums from good corporate governance. The importance and visibility of corporate governance has grown during recent years due to big corporate failures. Despite this, the effect of foreign currency derivatives and corporate governance together has not been studied during recent years.
The data used in this study consists of firms from Finland, Sweden, Norway and Germany and the study period is from 2011 to 2015. The research is conducted in two parts. First, the unconditional effect of foreign currency derivatives hedging is studied. Then, the impact of corporate governance is included. All regressions are done using a pooled OLS regression model. In addition, robustness tests are conducted to show that the results are robust.
The first results show that the use of foreign currency derivatives is associated with a value premium. However, the difference between value premiums between well governed and poorly governed firms remains relatively small. Both poorly governed and well governed firms are assessed with significant value premiums for the use of currency derivatives. This can be due the fact that when a country has strong external corporate governance, which is the case in this study, the importance of internal corporate governance seams to decrease. Overall, the results of this study show the importance of the internal and external corporate governance level in how investors asses the value for foreign currency derivatives use.
The data used in this study consists of firms from Finland, Sweden, Norway and Germany and the study period is from 2011 to 2015. The research is conducted in two parts. First, the unconditional effect of foreign currency derivatives hedging is studied. Then, the impact of corporate governance is included. All regressions are done using a pooled OLS regression model. In addition, robustness tests are conducted to show that the results are robust.
The first results show that the use of foreign currency derivatives is associated with a value premium. However, the difference between value premiums between well governed and poorly governed firms remains relatively small. Both poorly governed and well governed firms are assessed with significant value premiums for the use of currency derivatives. This can be due the fact that when a country has strong external corporate governance, which is the case in this study, the importance of internal corporate governance seams to decrease. Overall, the results of this study show the importance of the internal and external corporate governance level in how investors asses the value for foreign currency derivatives use.