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Financial Distress Risk and the Hedging of Foreign Currency Exposure

Author

Listed:
  • M. Martin Boyer

    (Department of Finance, HEC Montréal, Université de Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada H3T 2A7, Canada)

  • Monica Marin

    (Department of Finance, HEC Montréal, Université de Montréal, 3000, chemin de la Côte-Sainte-Catherine, Montréal, Québec, Canada H3T 2A7, Canada)

Abstract

We examine the use of foreign currency hedging instruments by US manufacturing firms during 1996–2004, and assess their impact on the firms' risk of financial distress. We derive measures of financial distress using the Black–Scholes–Merton option pricing model and find that the use of foreign currency hedging instruments reduces the firms' financial distress. The main findings are confirmed when examining alternate measures of foreign currency exposure, econometric specifications or measures of financial distress.

Suggested Citation

  • M. Martin Boyer & Monica Marin, 2013. "Financial Distress Risk and the Hedging of Foreign Currency Exposure," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-36.
    • Handle: RePEc:wsi:qjfxxx:v:03:y:2013:i:01:n:s201013921350002x
    DOI: 10.1142/S201013921350002X
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    Cited by:

    1. Abhi Bhattacharya & Joseph Johnson & Ashkan Faramarzi & Niket Jindal & Ross W. Johnson, 2024. "Marketing capability and the turnaround of financially distressed firms," Journal of the Academy of Marketing Science, Springer, vol. 52(4), pages 1195-1215, July.
    2. Thomas Kiptanui Tarus & Joel K Tenai & Joyce Komen, 2020. "Does Ownership Structure Affect Risk Management? Evidence from an Emerging Economy, Kenya," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 8(1), pages 1-10.

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