The dynamic effect of corporate financial hedging on firm value: The case of Indian MNCs

Jyoti Prakash Das; Shailendra Kumar

Borsa Istanbul Review (May 2023)

The dynamic effect of corporate financial hedging on firm value: The case of Indian MNCs

Jyoti Prakash Das,
Shailendra Kumar

Affiliations

Jyoti Prakash Das: Corresponding author.; Department of Management Studies, Indian Institute of Information Technology, Allahabad, Prayagraj, Uttar Pradesh, Pin-211015, India
Shailendra Kumar: Corresponding author.; Department of Management Studies, Indian Institute of Information Technology, Allahabad, Prayagraj, Uttar Pradesh, Pin-211015, India

Journal volume & issue: Vol. 23, no. 3
pp. 696 – 708

Abstract

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This paper explores the effect of financial instruments for exchange rate hedging on a firm's value in the presence of non-operating profit or loss from foreign exchange transactions. This study uses Tobin's Q ratio as a proxy for firm value and a two-step generalized method of moments (GMM) model to estimate the effect of financial hedging. Our dynamic panel analysis using extensive data on 61 Indian multinational corporations (MNCs) in 2009–2020 shows that financial hedging instruments, such as foreign currency derivatives (FCD) and foreign currency–denominated debt (FDD), enhance firm value by 16.91% and 10.21%, respectively. The results of the robustness test confirm the findings.

Published in Borsa Istanbul Review

ISSN: 2214-8450 (Print); 2214-8469 (Online)
Publisher: Elsevier
Country of publisher: Netherlands
LCC subjects: Social Sciences: Finance
Website: http://www.journals.elsevier.com/borsa-istanbul-review/

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