Does Centralisation of FX Derivative Usage Impact Firm Value?

Håkan Jankensgård

European Financial Management, 2015, vol. 21, issue 2, 309-332

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 centralised FX exposure management, compared to a decentralised 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 centralisation†hypothesis. Firms with a centralised approach have a statistically significant derivative premium of around 15%, whereas there is no premium for decentralised firms.

Date: 2015
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https://doi.org/10.1111/j.1468-036X.2013.12014.x

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