Stefano Bonini, Maurizio Dallocchio, Philippe Raimbourg, Antonio Salvi

Do firms hedge translation risks?

  • Article
  • pp. 155-178
  • DOI: 10.12831/85435
  • Abstract

Keywords: Translation risk; hedging; derivatives.

Using a sample of 622 companies in 25 countries over a four-year period (2003-2006), we investigate the translation risk hedging strategy of multinational companies. We find that a significant percentage of companies (47%) actively manage their translation risk. Hedgers are dominant in northern Europe, whereas non-hedgers prevail in southern Europe, South America and Asia. A credit rating significantly increases the likelihood of initiating and maintaining a hedging policy, as firms try to avoid translation losses that may increase leverage ratios and thus affect their rating. Accounting principles are also important because IFRS adopters hedge more than companies reporting exclusively through national principles. Hedgers adopt a variety of instruments from balance sheet hedging to derivatives. Derivatives are more common among United States GAAP adopters, whereas loans and mixed solutions are preferred among multinationals either adopting IFRS or local accounting principles. Our results show that the translation risk hedging decision is a long-term, persistent choice by companies.

Prima pagina articolo
Post your comment:
In order to submit your comment, you have to register, filling out the fields below. If you are already registered, please login.
* Indicates a required field
Insert first name and last name. Example: John Smith
This address is used to authenticate your account should you ever encounter problems or forget your password.
Type the characters you see in the picture
In qualità di Interessato, dichiaro di aver preso visione dell'informativa privacy, e acconsento al trattamento dei miei dati personali per le finalità indicate:
The use of this site is under a Legal notice, that I have completely read and with which I full agree [http://www.jfmi.mulino.it/en/license].
According to the art. 1341 c.c., authorized user explicitly agrees to the terms of Legal notice to the points: 6, 7, 8 and 9.