Corporate risk management for multinational corporations: Financial and operational hedging policies and banks, stock markets, and economic efficiency and the information impact of international cross listings on stock returns

This dissertation consists of three essays in finance that may be read independently. The first essay analyzes the conditions under which a multinational corporation will alter its operations to manage its risk exposure. The analysis shows that such "operational hedging" benefits the firm only if it confronts both exchange rate uncertainty and demand uncertainty. Operational hedging is less important for managing short-term exposures, since demand uncertainty is lower in the short term. Operational hedging is also less important for commodity-based firms, which face price but not quantity uncertainty.;The second essay examines the contribution of banks and stock markets to economic efficiency in a setting of imperfect information and contractual incompleteness. In the model analyzed, banks take concentrated investment stakes in firms that provide incentives to perform noncontractible, value-improving actions such as monitoring managers and assisting with strategic planning. Stock markets provide a mechanism to induce production, credible disclosure and aggregation of information about firm prospects. Stock market information allows firms to invest more efficiently and to contract more efficiently with outside parties. An interesting insight from the analysis is that an improvement in bank efficiency can increase the benefits of employing both stock market and bank financing relative to using only bank financing, implying that reform of the banking sector could lead to a boom in new stock market issues.;The third essay investigates the impact of an international cross listing on the return characteristics of the underlying stock. I find that foreign listings and quotations on the London Stock Exchange lead to a permanent average decrease in variance of the residual from a regression of returns on the home country exchange on returns on domestic, foreign, and world stock indices. Larger firms and SEAQI firms experience a greater reduction in residual variance through cross listing than other firms. An explanation for this result is that an international listing stabilizes returns through expansion of a firm's investor base. For smaller firms and directly listed firms, this stabilization effect is partly offset by the positive information impact of a listing.