Financial Hedging and Corporate Investment: Evidence from Mergers and Acquisitions∗

M&As are the most important form of corporate investment. Their capital intensiveness makes the financing decision key to the M&A process. Given the welldocumented relationship between corporate financial hedging and the firm’s borrowing costs and capacity, this study examines the impact of corporate financial hedging on the likelihood of undertaking acquisition investments as well as the associated financing choices. Results show that utilizing financial derivatives enables firms to pursue inorganic growth opportunities in the form of M&As. Acquiring firms with financial hedging programs in place are more likely to finance their acquisitions with cash as well as external borrowing. Our study contributes to existing literature by showing that nancial hedging could serve as an effective vehicle for firms to bring their inorganic investment plans to fruition by facilitating their financing.