As a result of the increasing volatility in financial markets, the use of financial derivative instruments(forward, futures, option, and swap) has become widespread particularly between large firms around the world.Market risk can be grouped into three categories: exchange rate risk, interest rate risk and commodity price risk.By employing financial derivatives, companies can manage these risks. It is required by International FinancialReporting Standards (IFRS) to reveal their financial positions on financial instruments in their financial reports.The related details in financial reports regarding financial derivatives make it possible to do empirical researchon the impact of derivative use on firm value. Along with the mixed results on the relationship among hedgingand firm value, empirical research that question the impact of hedging on firm operating activities have beenunexpectedly missing. In this study, we aim to examine a significant type of firm operations, cross-bordermergers and acquisitions, which is well known for changing a firm’s financial risk exposure. By studying theeffect of hedging on firm performance through cross-border M&As, we aim to find out whether and in whatway risk management affects firm performance. With a sample of 537 cross-border mergers and acquisitions (M&As) conducted by 14 different developed European companies between 2007 and 2019, we find evidencethat acquirers with financial hedging programs have higher cumulative abnormal returns (CARs) than thosewithout such programs around deal announcements. Event study, T-test and Mann-Whitney Test are usedas research methods in this study. Additionally, our results show that derivatives users experience longerdeal completion times than non-users. Overall, this study provides findings for the European region on theconnection between corporate financial hedging and firm performance. Our findings regarding Europe supportthe previous study in the USA.
