The use of derivatives and the cost of equity: Evidence from UK MNE’s = El uso de derivados y el costo de capital: Evidencia de empresas multinacionales en el Reino Unido

This paper studies the hedging activities of 104 non-financial UK MNEs from 2005 to 2009 to examine their potential effect on the cost of equity. We use the Fama and French Three Factor Model to estimate the cost of equity and we collect detailed information on hedging and risk management activities...

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Detalles Bibliográficos
Autor Principal: Caicedo Montana, María Ximena
Formato: Trabajo de grado (Bachelor Thesis)
Lenguaje:Desconocido (Unknown)
Publicado: 2014
Materias:
Acceso en línea:http://babel.banrepcultural.org/cdm/ref/collection/p17054coll23/id/339
Descripción
Sumario:This paper studies the hedging activities of 104 non-financial UK MNEs from 2005 to 2009 to examine their potential effect on the cost of equity. We use the Fama and French Three Factor Model to estimate the cost of equity and we collect detailed information on hedging and risk management activities directly from the annual reports. Although we evidence a negative relation between the cost of equity and hedging activities, we find that the cost of equity is not significantly affected by whether firms are hedgers or non-hedgers. We further use different subsamples and we are able to observe that: (i) size and leverage are important factors in the analysis of hedging and cost of equity, and (ii) the financial crisis plays an active role in the way firms understand and react towards unexpected volatility and risk. Finally we find that controlling for endogeneity of the hedging decision and for potential sample selection bias our results are more robust and are supporting evidence for the negative and significant relationship between hedging and cost of equity.