Foreign Currency Derivatives and Firm Value: Evidence from New Zealand

Hao Li, Nuttawat Visaltanachoti, Robin H. Luo

Faculty of Business, ALHOSN University, Abu Dhabi, United Arab Emirates.
School of Economics and Finance, Massey University, Auckland, New Zealand.

DOI: 10.4236/jfrm.2014.33010                

Abstract

The benefit of corporate hedging remains controversial. While hedging could reduce the likelihood of adverse outcome, it will incur additional costs that may offset such benefit. This study provides some evidences to resolve the debate. We examine the benefits of foreign currency derivatives usage in 134 non-financial firms listed on the New Zealand Stock Exchange. New Zealand dollar experiences relatively high volatility so it is an ideal setting to examine whether the currency derivative usage could add value to the firm. Using Tobin-Q and other of its variants as a proxy of firm value, we find no evidence supporting the notion that the use of foreign currency derivatives can enhance a firm value.

Keywords

Currency, Derivatives, Risk Management

Conflicts of Interest

The authors declare no conflicts of interest.

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