Openness, hedging incentives and foreign exchange exposure: A firm-level multi-country study

Hutson, Elaine; Stevenson, Simon

doi:10.1057/jibs.2009.32

Cited by 79 publications

(73 citation statements)

References 62 publications

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“…To explore this question, we incorporate EPU exposure -which we define as the percentage change in the rate of return on a firm's common stock against a 1% change in the EPU index. Our approach is in line with the literature on firm exposure to risk and uncertainty (e.g., Hutson, & Stevenson, 2010;Allayannis, & Weston, 2001). Extant literature (e.g., Allayannis, & Weston, 2001) finds that derivatives are an effective instrument to hedge against exchange and interest rates.…”

Section: Epu and Derivatives Usesupporting

confidence: 71%

“…We choose these two variables because an increase in GDP per capita and financial system deposits to GDP gestures growth in the economy and tends to signal a reduction in market risks. Additionally, Hutson and Stevenson (2010) find a significant negative link between exposure and the extent of creditor protection in a country. Thus, we use rule of law to proxy for country governance quality.…”

Section: Country-level Control Variablesmentioning

confidence: 86%

“…Recent studies have identified that smaller firms are more subject to market risk exposure than larger firms (Pantzalis et al, 2001;Hutson & Stevenson, 2010), and MNCs are associated with smaller and less significant exchange rate exposure than nonMNCs (Choi & Jiang, 2009). Thus, we use the natural logarithm of the book value of total assets as a proxy for firm size.…”

Section: Firm Sizementioning

confidence: 99%

“…In line with existing studies (e.g., Allayannis & Ofek, 2001;Hutson & Stevenson, 2010), we apply the two-stage approach. In the first stage, we estimate firm exposure to EPU using the Adler and Dumas (1984) market model.…”

Section: Stage One: Exposure Estimationmentioning

confidence: 99%

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Policy uncertainty, derivatives use, and firm-level FDI

2017

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We explore the link between uncertainty in economic policy, firm-level FDI, and firm hedging behavior -building upon a newspaper-based index of economic policy uncertainty (EPU). We find that the relative difference in EPU between home and host country has a significant relationship with FDI. Firms increase their FDI level in countries, which have a low level of EPU relative to their home country. In addition, firms use derivatives more intensively in response to an increase in EPU. Interestingly, the link between EPU and corporate derivatives use varies according to the type of firm. Domestic MNCs make the most effective use of derivatives to hedge against EPU exposure. Journal of International Business Studies (2018) 49, 96-126.

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Section: Epu and Derivatives Usesupporting

confidence: 71%

Section: Country-level Control Variablesmentioning

confidence: 86%

Section: Firm Sizementioning

confidence: 99%

Section: Stage One: Exposure Estimationmentioning

confidence: 99%

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Policy uncertainty, derivatives use, and firm-level FDI

2017

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“…Similar to Hutson and Stevenson (2010), the exposure variables are measured as the square root of the absolute value of the estimated values of the parameters ,…”

Section: Banks Derivatives and Its Exposurementioning

confidence: 99%