Date of Award

Summer 2005

Document Type


Degree Name

Doctor of Philosophy (PhD)


Business Administration-Finance

Committee Director

John Doukas

Committee Member

Mohammad Najand

Committee Member

Vinod Agarwal


In recent years a growing number of corporations have committed considerable resources to risk management, indicating the potential for risk management to protect and increase firm value. One can argue that most prior attempts to directly link the value of the firm to its hedging strategies are rather scant. Moreover, several questions with regards to firms' risk management activities remain unanswered. This study consists of two essays dealing with a series of questions regarding corporate risk management in modern U.S. multinational corporations.

In the first essay we first, test the valuation effects of currency hedging policies of firms around extraordinary exchange rate instability events. The exchange rate shocks of the Asian Currency crisis of 1997 and the Brazilian Real Devaluation of 1999 are used as the exchange rate instability events. These two currency crises provide us with a unique set of exogenous events to assess the effectiveness of currency risk management. The valuation effect is implemented by using two measures of firm value, namely Tobin's Q ratio and the firm's Excess Market Value. Second, we conduct tests specifically designed to shed light on the effectiveness of natural and financial hedges, in the attempt to determine whether financial hedging and non-financial (natural) hedging techniques are complementary or substitutive means for risk management during periods of exchange rate shocks.

In the second essay we investigate the relationship between currency risk management activities, firm value and the agency-related costs arising from the separation of ownership and control. Specifically, we test the damaging effects of corporate hedging motivated by the managerial risk preferences hypothesis as outlined by Tufano (1998). This study is the first to use the Corporate Governance Index (G); a state of the art measure, to proxy for the level of agency costs in the firm and relate it to the firm's currency hedging profile.

Overall, our findings do not support the negative valuation effect as predicted by Tufano (1998). Our results provide support to the hedging theories that link corporate hedging policies to managerial career and reputation concerns. In addition, our results are in line with the body of the finance literature suggesting that the realization of managerial risk preferences may not always lead to a lower shareholder and firm value.


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