The Value of Foreign Currency Hedging: A study on the German market

Abstract: This study examines the use of derivatives by 137 public firms in Germany in 2006-2010. To our knowledge our study is the first examination of the relation between hedging and market value on the German market. We find in univariate tests that the use of derivatives by non-financial firms does not add value. The results from our tests are inconsistent with theoretical predictions. Additionally our multivariate tests turn out to be inconsistent compared to the reported significant results within the documented U.S. sample examination as regards a value-enhancing effect imposed by derivatives. We identify influence factors in the areas of corporate governance, internationalization and managerial ability as a possible explanation for country-specific differences between firms in Germany and the U.S.