Impact of corporate hedging practices on firm's value: An empirical evidence from Indian MNCs

Jyoti Prakash Das () and Shailendra Kumar ()
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Jyoti Prakash Das: Indian Institute of Information Technology, Allahabad
Shailendra Kumar: Indian Institute of Information Technology, Allahabad

Risk Management, 2023, vol. 25, issue 2, No 3, 35 pages

Abstract: Abstract This paper investigates the effect of financial and non-financial hedging on firms' value while mitigating the exchange rate exposure for 97 Indian multinational corporations from 2009 to 2020. Despite mixed evidence of the value increment effect of corporate hedging, the reduction effect is sporadic. With a dynamic panel set-up and applying the two-step GMM model, the result shows no impact from operation hedging on firms' value. In contrast, financial hedging is significant and impactful. Firms' value enhanced on average by 16.64–19.65% and 10.33–16.15% through derivative and foreign debt, respectively, after controlling non-operating profit (loss) from foreign exchange accounting and translation profit (loss) simultaneously and separately. The result of the robustness test is also consistent with the findings. The positive valuation effect motivates the decision maker of Indian MNCs to hedge the risk of foreign exchange exposure through derivatives and debts.

Keywords: MNC; Financial hedging; Operational hedging; Firm value; FXGAIN (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1057/s41283-023-00115-3

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