The effects of currency hedging on firm value using a threshold model

This study has examined the effects of currency derivatives on firm value in China and explored the dynamics of firm performance whilst considering agency problems and information asymmetry. The sample comprises data from 316 listed firms in the manufacturing industry on the Shenzhen stock market and uses Tobin’s Q as the measure of the firm’s value. Currency derivatives usage does not show any effect in the static threshold model, while it exhibits a significant valuation effect with the estimation of the dynamic threshold model: in the lower regime (low leverage firms) the effect of currency derivatives is significant and positive, there is less of an effect in the higher regime (high leverage firms).