Financial Hedging and Firm Performance: Evidence from Cross‐border Mergers and Acquisitions

Abstract

Using a sample of 1,369 cross‐border acquisitions announced by Standard & Poor's 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than non‐users, which translates into a US$ 193.7 million shareholder gain for an average‐sized acquirer. In addition, we find that acquirers with hedging programmes have higher deal completion probabilities, longer deal completion times, and better long‐term post‐deal performance. We confirm our findings after employing an extensive array of models to address potential endogeneity. Overall, our results provide new insights into a link between corporate financial hedging and firm performance.

Modeling Price Volatility Based on a Genetic Programming Approach

“…Existing studies have unveiled a positive relation between derivatives hedging and firm performance (see Bartram et al ., ; Haushalter et al ., ; Pérez‐González and Yun, ). More recently, Chen, Han and Zeng () also provide robust evidence in support of the view that companies who use derivative hedging achieve higher returns than non‐users do.…”

“…Several studies have shown that there exists a positive relationship between derivatives hedging and firm performance (see Allayannis et al ., ; Bartram, Brown and Conrad, ; Haushalter et al ., ; Pérez‐González and Yun, ). More recently, Lau () has shown that hedging can strengthen company's ROA and ROE, while Chen, Han and Zeng () find that hedging companies announce higher returns than non‐users. Typically, hedging strategies are supported by a variety of econometric models aiming at forecasting the volatility of commodity prices.…”

Fi̇nansal Ri̇sk Yöneti̇mi̇ Ve Fi̇rma Performansi: Avrupa Sinir Ötesi̇ Bi̇rleşme Ve Satinalmalarindan Bulgular

“…Next, the phase of interim is described as the phase among the date of the announcement and completion of the transaction. Lastly, the post-acquisition phase is described as the phase after the completion of the transaction, that could be also split into the integration phase and the post-integration phase (Ahern & Sosyura, 2014;Chen, Han & Zeng, 2017). Pre-acquisition phase includes the evaluation of the financial risk of the target firms.…”

“…Cross-border M&As involve extra risk components as a result of changes in culture, natural features, capital market growth, accounting instructions, and rules among the acquirer and the target firms contrasted to domestic M&As. More prominently, taking over by a foreign acquirer firm considerably changes the target firm's financial risk exposure (Chen, Han & Zeng, 2017). The different stages of the transaction of a standard M&A procedure and the related risks that Chen, Han & Zeng (2017) recommend are illustrated in Figure 1.…”

“…More prominently, taking over by a foreign acquirer firm considerably changes the target firm's financial risk exposure (Chen, Han & Zeng, 2017). The different stages of the transaction of a standard M&A procedure and the related risks that Chen, Han & Zeng (2017) recommend are illustrated in Figure 1.…”