The Rise and Fall of the Hedging Premium: Evidence from Globalizing Firms

This study investigates the relationship between corporate hedging and firm value, with a focus on how this relationship evolves when firms transition from domestic operations to multinational status. Using a sample of 66 U.S. firms observed in 1999 and 2014, the analysis examines whether the previously observed "hedging premium"—an increase in firm value linked to financial derivatives usage—persists in globally diversified firms. Tobin’s Q is used as a proxy for firm value. Results show that prior to multinational expansion, financial hedging contributes significantly to firm value. However, this premium diminishes after internationalization, indicating that natural operational hedging from global diversification may substitute for financial derivatives. The study has implications for corporate risk managers in adapting hedging strategies across globalization cycles.