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Foreign Debt Usage in Non†Financial Firms: a Horse Race between Operating and Accounting Exposure Hedging

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  • Tom Aabo
  • Marianna Andryeyeva Hansen
  • Yaz Gulnur Muradoglu

Abstract

Previous studies show that foreign exchange exposure from international sales can be hedged by foreign debt. We go beyond the foreign sales measure by using a unique database with detailed exposure information on Danish non†financial firms with international operations. Our results indicate that foreign debt is used to hedge foreign assets and subsidiaries (accounting exposure) as opposed to foreign sales (operating exposure). The paper adds to the literature on corporate hedging by highlighting the importance of accounting exposure in the hedging behavior of corporate managers and the perceived need to reduce risks due to currency mismatches between assets and liabilities.

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  • Tom Aabo & Marianna Andryeyeva Hansen & Yaz Gulnur Muradoglu, 2015. "Foreign Debt Usage in Non†Financial Firms: a Horse Race between Operating and Accounting Exposure Hedging," European Financial Management, European Financial Management Association, vol. 21(3), pages 590-611, June.
    • Handle: RePEc:bla:eufman:v:21:y:2015:i:3:p:590-611
    DOI: 10.1111/j.1468-036X.2013.12032.x
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    2. Roberto Alvarez & Erwin Hansen, 2017. "Corporate Currency Risk and Hedging in Chile: Real and Financial Effects," IDB Publications (Working Papers) 97976, Inter-American Development Bank.
    3. Galvez, Julio & Gambacorta, Leonardo & Mayordomo, Sergio & Serena, Jose Maria, 2021. "Dollar borrowing, firm credit risk, and FX-hedged funding opportunities," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Sticca, Ralph Melles & Nakao, Silvio Hiroshi, 2019. "Hedge accounting choice as exchange loss avoidance under financial crisis: Evidence from Brazil," Emerging Markets Review, Elsevier, vol. 41(C).
    5. Leonardo Gambacorta & Sergio Mayordomo & Jose Maria Serena, 2020. "Dollar borrowing, firmcharacteristics, and FX-hedged funding opportunities," BIS Working Papers 843, Bank for International Settlements.
    6. Choi, Young Mok & Park, Kunsu, 2019. "Does foreign currency-denominated debt affect dividend payout policy? Evidence from Korea," Journal of Multinational Financial Management, Elsevier, vol. 49(C), pages 20-34.

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