Hedging FX Exposure Risk by Foreign Currency-denominated Debt and Derivatives: Evidence from Chinese Listed Companies

DOI: https://doi.org/10.62517/jse.202411215

Author(s)

Yongshuang Fu, Jiayi Du, Yajie Wang*

Affiliation(s)

School of Management, Harbin Institute of Technology, Harbin, China *Corresponding Author.

Abstract

This empirical study explores the determinants of foreign currency debt financing for export-oriented companies, utilizing panel data from Chinese listed companies spanning the period 2015-2019. Across the entire sample, raising foreign currency debt appears to serve as a natural hedging mechanism; employing foreign exchange hedging instruments effectively mitigates foreign exchange risks for these firms. Subsequent analysis demonstrates that industry variations can introduce risk exposure in foreign currency debt, with hedging instruments and foreign debt acting as effective complements or substitutes for risk prevention. Additionally, corporate characteristics, debt term structure, and internationalization level significantly influence the use of foreign currency debt and exposure to foreign exchange risks.

Keywords

Corporate Foreign Currency Debt; Foreign Exchange Exposure; Natural Hedging; Financial Derivatives

References

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