Economics at your fingertips  

Offshore activities and financial vs operational hedging

Gerard Hoberg and S. Katie Moon

Journal of Financial Economics, 2017, vol. 125, issue 2, 217-244

Abstract: A key question is why many multinational firms forgo foreign exchange derivative (FX) hedging and instead use operational hedging. We propose an explanation based on illiquidity and the unique advantages of operational hedges. We use 10-K filings to construct dynamically updated text-based measures of the offshore sale of output, purchase of input, and ownership of assets. We find that firms use FX derivatives when they are liquid and generally available. Otherwise, they often favor purchasing input from the same nations they sell output to, an operational hedge. Quasi-natural experiments based on new derivative product launches suggest a likely causal relation.

Keywords: Offshore operations; Operational hedging; Financial hedging; Risk management; 10-K filings (search for similar items in EconPapers)
JEL-codes: F14 F23 G15 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2018-09-15
Handle: RePEc:eee:jfinec:v:125:y:2017:i:2:p:217-244