Abstract
This paper studies the impact of financial hedging on firm performance in cross-border mergers and acquisitions (M&As). Using a sample of 1,369 acquisitions announced by S&P 1500 firms between 2000 and 2014, we find strong evidence that derivatives users experience higher announcement returns than nonusers, which translates into a $193.7 million shareholder gain for an average-sized acquirer. In addition, we find that acquirers with hedging programs have higher deal completion probabilities, longer deal completion time, and better long-term post-deal performance. We confirm our findings after employing an extensive array of models to address the potential endogeneity. Overall, our results provide new insights into a link between corporate financial hedging and firm performance.
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