Foreign debt and financial hedging: Evidence from Australia

Hoa Nguyen, Robert Faff*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

12 Citations (Scopus)

Abstract

We investigate the role of foreign currency denominated debt (FCDD) as a natural hedging instrument using a sample of Australian firms. Our results show that the incidence of foreign debt use among industrial sector firms is associated with a lower level of exchange rate exposure. The practice of issuing foreign debt within the industrial sector also conforms better to the hypothesis that firms do so to satisfy a demand for hedging. In contrast, although the incidence of foreign debt issues is higher in the resource/mining sector, the underlying motive for such arises from a demand for financing.

Original languageEnglish
Pages (from-to)184-201
Number of pages18
JournalInternational Review of Economics and Finance
Volume15
Issue number2
DOIs
Publication statusPublished - 2006
Externally publishedYes

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