Corporate Currency Hedging through the Use of Derivatives An analysis on its effects and determinants on a European sample

Abstract: According to financial theory, corporate hedging increases shareholders' value in presence of imperfect capital markets. Empirical results backing this hypothesis have always been contradictory, showing different results depending on which kind of companies, industries, countries were analyzed and which proxy variables were deployed to assess this relationship. Numerous limits of empirical studies in this field require a prudent interpretation of results, but in general they show that corporate hedging does not have "one size fits all" solutions. In this paper we firstly present a broad review of previous corporate hedging policies. Secondly, we perform a random effect regression analysis on corporate currency hedging and shareholders' value and cash-flow volatility. In the end, we provide a summary of interviews and point of view of professionals, working in corporate treasuries, in order to shed light on the different facets of currency hedging, with a specific focus on differences between academia and the corporate world.