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Foreign Currency Exposure and Hedging: Evidence from Foreign Acquisitions (2007)
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BibTeX
@MISC{Bartram07foreigncurrency,
author = {Söhnke M. Bartram and Natasha Burns and Jean Helwege and Söhnke M. Bartram and Natasha Burns and Jean Helwege},
title = {Foreign Currency Exposure and Hedging: Evidence from Foreign Acquisitions},
year = {2007}
}
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Abstract
Previous research on the impact of currency risk on stock returns has failed to find a significant role for foreign exchange rates. This paper addresses several explanations of this finding with a unique dataset of U.S. firms that acquire targets in other countries. The dataset allows estimation of the impact of exchange rates using firm-specific bilateral exchange rates and a time period over which underlying exposure is known to significantly change. We also relate the change in exposure from before to after the acquisition to various characteristics of the acquirer, such as its presence in the target country prior to the deal and its hedging activities, and characteristics of the target, such as the exposure of the target prior to the deal. The results suggest that identifying a relevant exchange rate can be an important consideration in studying the impact of exchange rate risk on stock returns, but identifying financial hedging information is not. Further, foreign targets often provide operational hedging benefits to the
Keyphrases
foreign currency exposure foreign acquisition stock return several explanation currency risk foreign exchange rate previous research important consideration unique dataset significant role underlying exposure exchange rate risk target country hedging activity various characteristic exchange rate firm-specific bilateral exchange rate relevant exchange rate operational hedging benefit u.s. firm time period foreign target
