Does Centralization of FX Derivative Usage Impact Firm Value?

Håkan Jankensgård ()

No 2013/5, Knut Wicksell Working Paper Series from Lund University, Knut Wicksell Centre for Financial Studies

Abstract: Previous research has shown that firms identified as derivative users tend to be valued at a premium relative to non-users. In this paper I develop the hypothesis that the ‘derivative premium’ is higher in firms with centralized FX exposure management, compared to a decentralized approach in which subsidiaries retain bank contacts and/or decision-making authority. This study benefits from unique survey data on the FX management practices and derivative usage of Swedish listed firms. The data supports the centralization-hypothesis. Firms with a centralized approach have a statistically significant derivative premium of around 15%, whereas there is no premium for decentralized firms.

Keywords: Centralization; risk management; currency risk; derivative; hedging (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-02-24
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:luwick:2013_005

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