Foreign Exchange Rate Derivatives and Firm Value

Abstract: Using Tobin’s Q as an approximation of firm value, this paper aims to examine the effect of foreign exchange rate derivatives on firm value. Risk management is viewed by many as one of the most vital aspects of corporate- and business strategy. On the topic of risk, foreign exchange rate exposure is a distinctive form of risk confronted by numerous internationally operating firms. The mitigation of such risk is commonly pursued by trading various forms of currency derivatives. Therefore, how and if this category of derivatives succeed in providing value to the firm should be of notable interest to any international manager. To meet the objective of this research, a sample of 75 multinational, non-financial firms listed on Nasdaq Stockholm, with a market capitalization equal to or exceeding 1 billion SEK, was gathered. Results from multivariate regression analysis showed no significant relationship between the use of foreign exchange rate derivatives and firm value. Thus, obtained results indicate that large Swedish firms may not achieve an increase in firm value by the trade of foreign exchange rate derivatives.