The Use of Foreign Currency Derivatives and Firm Market Value

George Allayannis and James P Weston

The Review of Financial Studies, 2001, vol. 14, issue 1, 243-76

Abstract: This article examines the use of foreign currency derivatives (FCDs) in a sample of 720 large U.S. nonfinancial firms between 1990 and 1995 and its potential impact on firm value. Using Tobin's Q as a proxy for firm value, we find a positive relation between firm value and the use of FCDs. The hedging premium is statistically and economically significant for firms with exposure to exchange rates and is on average 4.87% of firm value. We also find some evidence consistent with the hypothesis that hedging causes an increase in firm value. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Date: 2001
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The Review of Financial Studies is currently edited by Itay Goldstein

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