Do currency interventions affect corporate hedging? firm-level evidence from India

This paper examines whether currency interventions by central banks explain firms' hedging decisions. Using a sample of 429 Indian firms for the period 2001-2022 and based on manually collected data on hedging, I find that currency interventions have a strong effect on firms' hedging decisions. The results also suggest that the hedging decisions of exporters and importers vary in response to sale or purchase interventions. Overall, the results contribute to the literature by providing the first evidence that large currency interventions by central banks reduce the probability and extent of corporate hedging. This implies that regulators should be cautious while formulating their intervention policies as it may influence the hedging activities in the country, specifically in emerging markets where currency intervention is commonly employed as a policy tool.