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Foreign currency hedging and firm productive efficiency

Author

Listed:
  • Sabri Boubaker

    (Métis Lab, France
    Vietnam National University)

  • Riadh Manita

    (NEOMA Business School)

  • Salma Mefteh-Wali

    (ESSCA School of Management)

Abstract

This study assesses whether foreign currency (FC) hedging improves firm productive efficiency. Using a unique sample of French non-financial listed firms belonging to the CAC All-Tradable index (former SBF250 index) index over the period 2004–2012, we employ a non-parametric method—data envelopment analysis—to estimate a firm’s efficiency frontier and analyze the role of financial hedging in addressing agency conflicts in France. The empirical results show that FC hedging has a significant positive effect on efficiency. This finding supports the theoretical view that hedging is a disciplinary device that can mitigate the owner–manager agency conflicts, leading to a better firm efficiency. The results are robust to a battery of sensitivity and endogeneity tests.

Suggested Citation

  • Sabri Boubaker & Riadh Manita & Salma Mefteh-Wali, 2022. "Foreign currency hedging and firm productive efficiency," Annals of Operations Research, Springer, vol. 313(2), pages 833-854, June.
    • Handle: RePEc:spr:annopr:v:313:y:2022:i:2:d:10.1007_s10479-020-03730-5
    DOI: 10.1007/s10479-020-03730-5
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    More about this item

    Keywords

    Data envelopment analysis; Foreign currency hedging; Financial hedging; Derivatives use;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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