Foreign Currency Hedging and Firm Productive Efficiency

Sabri Boubaker, R. Manita and S. Mefteh-Wali
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R. Manita: NEOMA - Neoma Business School
S. Mefteh-Wali: ESSCA - ESSCA – École supérieure des sciences commerciales d'Angers = ESSCA Business School

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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\textendash2012, we employ a non-parametric method\textemdashdata envelopment analysis\textemdashto 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\textendashmanager agency conflicts, leading to a better firm efficiency. The results are robust to a battery of sensitivity and endogeneity tests. \textcopyright 2020, Springer Science+Business Media, LLC, part of Springer Nature.

Keywords: Data envelopment analysis; Derivatives use; Financial hedging; Foreign currency hedging (search for similar items in EconPapers)
Date: 2022
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Published in Annals of Operations Research, 2022, 313 (2), pp.833-854. ⟨10.1007/s10479-020-03730-5⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04452666

DOI: 10.1007/s10479-020-03730-5

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