1 Finance Research Group, Aarhus School of Business, Aarhus BSS, Aarhus University2 Department of Management, Aarhus School of Business, Aarhus BSS, Aarhus University3 International Management and Control, Aarhus School of Business, Aarhus BSS, Aarhus University4 Department of Economics and Business Economics, Aarhus BSS, Aarhus University5 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
The interaction between real options and financial hedging is analyzed empirically. A majority of Danish non-financial companies either (1) chooses at times not to hedge an exchange rate operating exposure financially due to the possibility of the company to react to changes in exchange rates by undertaking real actions (exercising real options) such as to abandon a market or establish production in a foreign country or (2) thinks it is likely that they will actually react to changes in exchange rates by undertaking such real actions. The role of real options in actual management of exchange rate exposures depends on the economic sector in which the company operates and the size of the company. Companies in Materials (and Consumer Discretionary) are significantly more inclined to undertake various real actions than is the case with companies in Industrials. The same holds for small and large companies as compared to medium-sized companies.