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
This cross-case study of eight blue-chip industrial companies extends previous studies of why exchange rate exposure management is done the way it is. While hedging should not be pursued unless it creates value, the operational objectives differ among companies. Avoiding financial distress is considered one of the most important ways of adding value by hedging. However, reducing stakeholders perceived risk and improving the ability to pursue investment plans and make value adding investments do also get some attention. While the overall objective is to add value, the dominating object for management is cash flows and less so accounting earnings. That accounting earnings do receive attention is linked to the possibility of reducing stakeholders perceived risk. In practice there is a focus on short-term cash flow exposures as opposed to the more long-term operating exposures. The study shows that major reasons behind this focus are the dynamic development of the competitive environment and the ability of the specific company to counter unfavorable changes in exchange rates by the exercise of real options (e.g. reallocation of production resources). As such, the study shows the in adequacy in taking a partial and static financial approach when making theoretical recommendations for managing exchange rate exposures in industrial companies.