The Value-relevance of Foreign Currency Derivatives Disclosures

This paper studies the value-relevance of FCD disclosures of European non-financial firms. Our findings show that these firms use FCDs to hedge and not to speculate but that the impact of hedging strategies’ disclosures is statistically and economically weak revealing that either (i) managers hedge only a small proportion of the currency risk they are facing, or that (ii) investors make systematic errors when assessing the link between disclosed FCD usage and firms’ risk exposures. We find strong evidence in favor of the existence of economies of scale in hedging and that European firms engage in hedging programs in response to tax convexity.