Year: 2008
Type: report
Abstract: This paper dismisses a number of rationales for corporate level hedging of foreign exchange exposure. It is argued that there is no basis for hedging to reduce variance in asseVliability values, to exploit risk premia in forward rates, to enjoy scale economies in transaction costs, or to overcome individual shareholder shortselling restrictions. Indeed, it is argued that we cannot even define a target exposure. The paper concludes by identifying several valid reasons for hedging. Two potentially valid reasons are better internal information and better investment decisions if managers cannot personally hedge. Other reasons are related to costs of financial distress from imperfections in the product, labor, and capital markets, and bankruptcy costs.
Source: Lirias
Authors: Maurice D. Levi, Piet Sercu
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2371063448