Skip to main content

Does Corporate Financial Risk Management Add Value? Evidence from Cross-Border Mergers and Acquisitions

We study the effect of financial hedging on firm performance with a sample of 1369 cross-border mergers and acquisitions (M&As) initiated by S&P 1500 firmsbetween 2000 and 2014. Our results show that derivatives users have higher acquirer cumulative abnormal returns (CARs) around deal announcements than non-users, which translates into a $174.3 million shareholder gain for an average-sized acquirer.
Related to the CAR improvement, acquirers with financial hedging programs also have lower implied stock volatilities and higher deal completion probabilities than those without such programs. In addition, nancial hedging reduces acquirers' waiting costs, allowing the longer negotiation time between acquirers and targets. Finally,we find that nancial hedging has a long-term eect on acquirer firm value such that
derivatives users have better post deal long-run performance than non-users. Overall, our findings provide new insights on a link between corporate nancial hedging and investment decisions.

Published on 30th June 2015
Authors Zhong Chen, Bo Han, Yeqin Zeng
Series Reference ICM-2015-05