Industry hedging level and firm risk management

This thesis investigates the effect of the level of competition and the level of hedging within the industry upon individual firms' foreign exchange risk management behavior as well as firm value for a sample of 387 US firms in the S&P 1500. This is addressed by using an extensive set of hand-collected data that measures the extent of industry and firm hedging of exchange rate risk over the three year period from 2003 to 2005 and by constructing variables that capture the effect of competition and industry level hedging. The results suggest that the hedging level of the industry has no effect on firm value. However, the study verifies that a firm's competitive incentive to hedge will increase when most competitors decide to hedge