Does Centralization of FX Derivative Usage Impact Firm Value?

Previous research has shown that firms identified as derivative users tend to be valued at a premium relative to non-users. In this paper I develop the hypothesis that the ‘derivative premium’ is higher in firms with centralized FX exposure management, compared to a decentralized approach in which subsidiaries retain bank contacts and/or decision-making authority. This study benefits from unique survey data on the FX management practices and derivative usage of Swedish listed firms. The data supports the centralization-hypothesis. Firms with a centralized approach have a statistically significant derivative premium of around 15%, whereas there is no premium for decentralized firms.