MNCfma07ChoiJiang

MNCfma07ChoiJiang - Does Multinationality Matter for...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Does Multinationality Matter for Exchange Exposure? Implications of Operational Hedging Jongmoo Jay Choi* and Cao Jiang *J.J. Choi (corresponding author), Department of Finance, Temple University, Fox School of Business, Philadelphia, P.A. 19122 (phone: 215-204-5084; fax: 215-204-1697 (email: jjchoi@temple.edu) C. Jiang, School of Business Administration, Holy Family University, Philadelphia, PA 19114 (email: cjiang@holyfamily.edu) An earlier version of this paper was presented at the Southern Finance Association meeting. Helpful comments and suggestions were received from Raj Aggarwal, Delroy Hunter, James Landi, Brian Lucey, and Colm Kearney. Partial supports from the Center for International Business Education and Research at Temple are gratefully acknowledged. January 2007
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Does Multinationality Matter for the Exchange Exposure? Implications of Operational Hedging Abstract A popular notion is that the exchange risk exposure is greater for international firms than domestic firms. In this paper, we examine the exchange risk exposure of U.S. firms for the period of 1983-2003, comparing samples of multinational and non-multinational firms. Since MNCs and non-MNCs differ not only in size and other characteristics, we construct matched samples of MNCs and non-MNCs based on the propensity scores estimated by a probit model. We find that multinationality matters for a firm’s exchange exposure but not in the way usually presumed. Contrary to popular perceptions, the exchange risk exposures are actually smaller and less significant for MNCs than non-MNCs. The results are robust with respect to different samples and model specifications. There is no evidence that financial hedging affects a firm’s exchange risk exposure or stock returns. However, operational hedging does decrease a firm’s exchange risk exposure and increase its stock returns. The effective deployment of operational risk management strategies provides one reason why MNCs may have insignificant exchange exposure estimates despite their significant international operations. JEL codes : F2, G3 Keywords : exchange risk exposure, multinationality, corporate risk management, operational hedging, financial hedging
Background image of page 2
Does Multinationality Matter for Exchange Exposure? Implications of Operational Hedging I. Introduction Existing studies of exchange exposure (e.g., Jorion (1990), Choi and Prasad (1995), Allayannis and Ofek (2001), Bodnar and Wong (2003), Faff and Marshall (2005)) suggest that a firm’s exchange exposure generally increases with a measure of its international operations. This underscores a popular notion (e.g., textbooks by Eiteman, Stonehill and Moffett (2006), Shaprio (2006)) that multinational corporations (MNC), with their higher degree of international operations, generally face greater exchange risk exposure than non-multinational firms. Multinationals are directly exposed to exchange risk through their assets and liabilities as well as
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/07/2010 for the course ECTCS ec12947322 taught by Professor Johnathayeri during the Spring '10 term at Life.

Page1 / 34

MNCfma07ChoiJiang - Does Multinationality Matter for...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online