Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries

Sangcheol Song, Seung-Hyun Lee and Mona Makhija

Journal of World Business, 2015, vol. 50, issue 3, 548-557

Abstract: This study examines the environmental conditions under which multinational corporations (MNCs) engage in operational hedging behaviors to actualize their operational flexibility within their international network. We analyzed a Korean MNCs' database and found that MNCs engage in operational hedging through global intra-firm trade to counteract volatile and divergent exchange rates across countries. Additionally, we found that the MNCs' utilization of intra-firm trade and flexible responses to volatile and divergent cross-country exchange rates enhances their performance. Our findings support the real options lens perspective of the value of multinational operational flexibility under external uncertainty in an international business setting.

Keywords: Multinational corporations; Foreign direct investments; Exchange rates; Operational hedging; Global intra-firm trade; MNC performance (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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DOI: 10.1016/j.jwb.2014.08.012

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