Knut Wicksell Working Paper Series, Knut Wicksell Centre for Financial Studies, Lund University
Does Centralization of FX Derivative Usage Impact Firm Value?
Abstract: Previous research has shown that firms identified as
derivative users tend to be valued at a premium relative to non-users. In
this paper I develop the hypothesis that the ‘derivative premium’ is higher
in firms with centralized FX exposure management, compared to a
decentralized approach in which subsidiaries retain bank contacts and/or
decision-making authority. This study benefits from unique survey data on
the FX management practices and derivative usage of Swedish listed firms.
The data supports the centralization-hypothesis. Firms with a centralized
approach have a statistically significant derivative premium of around 15%,
whereas there is no premium for decentralized firms.
Keywords: Centralization; risk management; currency risk; derivative; hedging; (follow links to similar papers)
JEL-Codes: G30; G32; (follow links to similar papers)
41 pages, February 24, 2013
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