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Foreign currency hedging and firm productive efficiency

Sabri Boubaker (), Riadh Manita () and Salma Mefteh-Wali ()
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Sabri Boubaker: Métis Lab, France
Riadh Manita: NEOMA Business School
Salma Mefteh-Wali: ESSCA School of Management

Annals of Operations Research, 2022, vol. 313, issue 2, No 11, 833-854

Abstract: Abstract This study assesses whether foreign currency (FC) hedging improves firm productive efficiency. Using a unique sample of French non-financial listed firms belonging to the CAC All-Tradable index (former SBF250 index) index over the period 2004–2012, we employ a non-parametric method—data envelopment analysis—to estimate a firm’s efficiency frontier and analyze the role of financial hedging in addressing agency conflicts in France. The empirical results show that FC hedging has a significant positive effect on efficiency. This finding supports the theoretical view that hedging is a disciplinary device that can mitigate the owner–manager agency conflicts, leading to a better firm efficiency. The results are robust to a battery of sensitivity and endogeneity tests.

Keywords: Data envelopment analysis; Foreign currency hedging; Financial hedging; Derivatives use (search for similar items in EconPapers)
JEL-codes: D24 G30 G32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10479-020-03730-5

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