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Derivatives Use, Information Asymmetry, and MNC Post-Acquisition Performance


  • We appreciate helpful comments and suggestions from Bill Christie (the editor), an anonymous referee, and participants at the 2006 Financial Management Association Annual Meeting and 2006 Multinational Finance Society Annual Meeting.


We utilize a sample of US acquiring firms that engaged in international M&As to document the effects of corporate derivatives use on post-M&A long-term performance. We find that derivatives users outperform nonusers. Furthermore, we find that acquirers with derivative policies that are more comprehensive and sophisticated outperform those with less comprehensive and sophisticated policies. They, in turn, outperform acquirers with no existing policies in place. Our results are consistent with the notion that the use of derivatives lowers information asymmetry related agency problems. Furthermore, our evidence indicates that derivatives use is an important corporate activity that has a profound effect on post-M&A performance.