The Effect of Currency Risk Internal Hedging Strategies on the Value of the Firm: Evidence of Listed Commercial Banks in Kenya

Article Date Accepted: !dateAccepted; | Article Date Published : 16 May 2018 | Page No.: 315-323

Abstract

Currency fluctuations are a global phenomenon, and can affect multinational companies directly through their cash flow, financial result and company valuation. The exposure to currency risks might however be covered against or ‘hedged’, as it is called, by different internal corporate strategies. However, some of these strategies might include a risk themselves as they can be expensive and uncertain. It is therefore an interesting question whether if these strategies are actually applied in practice, and if so which strategies are favored and why. Specifically the study sought to determine the effect of netting on the value of listed commercial banks in Kenya, to find out the effect of leading and lagging on the value of listed commercial banks in Kenya and to establish the effect of pricing adjustment on the value of listed commercial banks in Kenya. The target population of this study was all the 10 listed commercial banks in Kenya. The study was based on secondary data which was collected from the annual reports submitted to the CBK by the banks and annual financial reports by banks for the period between 2009 and 2015. Descriptive analysis and panel data regression analysis were applied in the study. The study found that use of internal hedging tools had a significant influence on the value of listed commercial banks in Kenya. Particularly netting, leading and lagging and price adjustment were all found to have positive effect on the value of commercial banks in Kenya. The study therefore recommended the use of different internal hedging techniques to eliminate the currency risk that affect the value of commercial banks


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Issue: 2018: Volume 02 Issue 05
Page No.: 315-323
Section: Articles
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