Operational hedging in foreign direct investments under volatile and divergent exchange rates across countries

This study examines the environmental conditions under which multinational corporations (MNCs) engage in operational hedging behaviors to actualize their operational flexibility within their international network. We analyzed a Korean MNCs' database and found that MNCs engage in operational hedging through global intra-firm trade to counteract volatile and divergent exchange rates across countries. Additionally, we found that the MNCs' utilization of intra-firm trade and flexible responses to volatile and divergent cross-country exchange rates enhances their performance. Our findings support the real options lens perspective of the value of multinational operational flexibility under external uncertainty in an international business setting. (C) 2014 Elsevier Inc. All rights reserved.