THE IMPACT OF FOREIGN EXCHANGE RATE HEDGING TOWARDS INDONESIAN LISTED MANUFACTURING FIRM VALUE
Manufacturing sector is the biggest contributor both to Indonesia’s GDP and export value which means manufacturing firms tend to have bigger exposure of foreign exchange rate risk compared to any other sector in Indonesia. Having such risk makes the income more volatile due to undone transaction wit...
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| Format: | Final Project |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/40667 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Manufacturing sector is the biggest contributor both to Indonesia’s GDP and export value which means manufacturing firms tend to have bigger exposure of foreign exchange rate risk compared to any other sector in Indonesia. Having such risk makes the income more volatile due to undone transaction with other parties which are not conducted in Rupiah, hence some risk mitigation is usually conducted by firms. However, based on the data from manufacturing firms annual reports not all firms do hedging to mitigate their foreign exchange rate risk exposure although it is said to be enhancing the firm value.
This research analyzed the impact of foreign exchange rate hedging activities towards the manufacturing firms’ value with multi linear regression to identify if such action is significantly affect the firm value, which later help firms to decide whether they need to conduct foreign exchange rate hedging activities or not in order to increase their firm value. The independent variable used in this research is percentage of foreign exchange hedging towards foreign account receivable value, the control variables are firm size, profitability ratio, leverage ratio, investment growth, and liquidity ratio, and the dependent variable is Tobin’s Q ratio which represents the value of the firm.
The result of this research shows that foreign exchange rate hedging activities with derivatives have no significant impact on manufacturing firm value in Indonesia, which means the decision whether to hedge or not the foreign exchange rate risk is not important when it comes to increasing the value of the firm in Indonesia. The result of this research suggests firms to do other way to mitigate such risk by doing natural hedging since it is free but has similar function while derivative usage can be costly yet the impact is not significant. |
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