Foreign Currency Exposure and Hedging: Evidence from Foreign Acquisitions

Author:

Bartram Söhnke M.1,Burns Natasha2,Helwege Jean3

Affiliation:

1. London Business School and Warwick Business School, UK

2. University of Texas at San Antonio, USA

3. University of South Carolina, USA

Abstract

We study the exchange rate exposures of a sample of firms that undertake large acquisitions of foreign companies. Using data from Securities and Exchange Commission (SEC) filings on their foreign operations and derivatives usage, we examine how the exposures change from before to after the acquisition. We find that these deals generally lead to reduced currency exposure, which reflects the fact that most of the firms already have business in the target's country and the mergers serve as operational hedges. In contrast, we do not find a statistically significant effect for hedging with currency derivatives despite the fact that many of the firms in the sample use such instruments.

Publisher

World Scientific Pub Co Pte Lt

Subject

Strategy and Management,Economics and Econometrics,Finance

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