Corporate Hedging Practice and Risk Management : Empirical Evidence from Multinational Corporations

This study focused on scrutinizing the impact of corporate hedging practices by MNCs on the firm's risk, such as systematic and total risk. Commonly hedging practices are used by MNCs to manage the exposure of the exchange rate risk. At the same time, exchange rate risk will significantly influence multinational corporations' systematic and total risk. For this purpose, data from 82 non-financial Indian MNCs were collected and analyzed. The results show a reduction in the firm's systematic and total risks through financial hedging. Surprisingly, the practice of operational hedging increases systematic risk, but its impact on total risk is negative. The results of this study were found to be consistent in both OLS (fixed effect) and the two-step GMM approach. The finding emphasizes the importance of corporate hedging through financial and operational means to manage the risk profile for multinational corporations