Financial Hedging and Firm Performance: Evidence from Cross-Border Mergers and Acquisitions

Abstract

2017) Financial hedging and firm performance: evidence from crossborder mergers and acquisitions. European Financial Management, 23 (3). pp. 415 458. AbstractThis paper studies the impact of financial hedging on firm performance in cross-border mergers and acquisitions (M&As). Using a sample of 1, 369 acquisitions announced by S&P 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than nonusers, which translates into a $193.7 million shareholder gain for an average-sized acquirer. In addition, we find that acquirers with hedging programs have higher deal completion probabilities, longer deal completion time, and better long-term post-deal performance. We confirm our findings after employing an extensive array of models to address the 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 posi-tive relation between derivatives hedging and firm performance (see Bartram et al, 2011;Haushalter et al, 2007;Pérez-González and Yun, 2013). More recently, Chen, Han and Zeng (2017) 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, 2012;Bartram, Brown and Conrad, 2011;Haushalter et al, 2007;Pérez-González and Yun, 2013). More recently, Lau (2016) has shown that hedging can strengthen company's ROA and ROE, while Chen, Han and Zeng (2017) 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.…”