Hypothesis test

HYPOTHESIS TEST
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(03 December 2010)
Hypothesis test
Risk Management by Multinational Corporations: A New Test of the Underinvestment Hypothesis by Peter R. Crabb.
The paper takes a look at the activities of the US multinational companies in their bid to protect themselves from underinvestment problems using foreign currency hedging. It is built on previous research that indicated that the investment opportunities of organizations can be used to enlighten on the hedging exchange rate risk. Geographically information, firm level information, and specifications in econometric are used in testing the further impacts of the underinvestment model (Crabb, 2006).
Multinationals have been hugely affected by the fluctuations of the foreign companies and this risk needs to be diversified if not insured against. This necessitates the use of foreign currencies derivatives (FCDs) (Crabb, 2006). The exchange rate generally decreases the cash flow which translates to lower returns and hence the firms have lower capability to fu...