JÖNKÖPING INTERNATIONAL BUSINESS SCHOOL

JÖNKÖPING UNIVERSITY

C an H ed g in g A ffec t F irm’s
Ma rket Valu e
A study with help of Tobin’s Q

Bachelor Thesis within Finance Economics

Author: Jakob Persson
Head supervisor: Johan Klaesson
Deputy supervisor: Johanna Palmberg
Jönköping December 2006
Bachelor’s Thesis in Finance
Title: Can hedging affect firm’s market value – a study with help of Tobin’s Q
Author: Jakob Persson
Tutors: Johan Klaesson, Johanna Palmberg
Date: 2006-12
Subject terms: Hedging, firm-value, Tobin’s Q, currency, derivatives,

Abstract
Previous studies have identified that the use of currency derivatives in order to minimize
the risk involved with foreign trade can also increase a firm’s value. Evidence of this can be
found in a paper such as Allayannis and Weston (2001) “Use of Foreign Derivatives and Firm
Market Value”, which showed that companies in the U.S. that uses these currency deriva-
tives has a higher firm value than companies that do not use them. However, there have
not been any studies concerning the Swedish market. This is why the Swedish market is se-
lected for this thesis but also since the Swedish market is a more open market than the U.S.
market for instance. The more open, the more volatile is the exchange rate, which one
could see as a reason to why Swedish companies should hedge even more.
The purpose of this thesis is to analyze the Swedish market and to find out if there is a rela-
tion between the firm value and hedging, analyzed with help of Tobin’s Q that gives us a
measurement of the firm’s underlying value.
The analysis is done on the 50 largest companies in Sweden, although some of the compa-
nies are ranked lower in the category total asset but since not all of the 50 largest compa-
nies met the requirements, the selection had to go further down the list. The data is re-
ceived from the companies annual reports (2005), this to receive the latest data. The com-
panies are analyzed with help of Tobin’s Q and also EBIT (Earnings Before Interest and
Tax), this to get a measurement of how the market value of the companies was towards
each others with pr without hedging.
The result is presented in the analyze and shows that there is no relation between firm
value and hedging, at least not in this research and with this selection of companies in the
Swedish market. This result contradicts the findings in the paper made on the U.S. market.

i
Kandidatuppsats inom Finansiering
Titel: Kan man påverka marknads värdet på företaget med hjälp av valuta säkringar
– en studie med hjälp av Tobin’s Q
Författare: Jakob Persson
Handledare: Johan Klaesson, Johanna Palmberg
Datum: 2006-12
Sök ord: Riskminimering, Företagsvärde, Tobins Q, Valuta, Derivat

Sammanfattning
Tidigare studier har visat att användning av valutaderivat för riskminimering vid utlands-
handel inte bara minimerar risk, utan kan också öka det underliggande värdet på företaget.
Bevis för detta kan bland annat hittas i en artikel av Allayannis and Weston (2001), “Use of
Foreign Derivatives and Firm Market Value", vilket visar att företag i USA som använder valu-
taderivat har ett högre värde än företag som inte använder dem. Det har inte gjorts någon
liknande studie av det här på den svenska marknaden. Det är därför den svenska markna-
den valts för denna uppsats men också för att den svenska marknaden anses vara mera öp-
pen än den amerikanska. En viktig anledning till att Svenska företag borde säkra mer, är att
ju öppnare valuta kursen är desto känsligare blir den
Syftet med uppsatsen är att undersöka om markandsvärdet av företag på den svenska
marknaden varierar vid hjälp valutaderivat jämfört med företag som inte handlar valutade-
rivat. Detta med hjälp av Tobin’s Q, vilket ger en tolkning av företagets värde.
Analysen är gjord på de 50 största företagen baserade i Sverige, även om vissa är rankade
lägre i kategorin totala tillgångar. Detta på grund av att de 50 största företagen inte mötte
de satta kraven, som till exempel utlandshandel. Alla siffror är hämtade från företagens års-
redovisningar (2005), detta för att få de senaste siffrorna. Företagen är sedan analyserade
med hjälp av Tobin’s Q och EBIT (Earnings Before Interest and Tax), detta för att få ett
mätverktyg av företagens värde och för att se hur företagen står emot varandra vid valuta
säkring eller inte.
Resultatet är presenterat i analysen och visar att det på den svenska marknaden inte förelig-
ger ett samband mellan företags marknadsvärden och valutasäkring. Detta resultat motsä-
ger det resultat Allayannis and Weston (2001) kom fram till på den amerikanska markna-
den.

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Table of Contents
1 Introduction............................................................................... 1
2 Background............................................................................... 4
2.1 Hedging ..................................................................................................4
2.1.1 Financial Distress and Underinvestment ................................................4
2.1.2 Expected Tax Costs ...............................................................................4
2.1.3 Managerial Risk......................................................................................5
2.2 Background to how Hedging adds Value to Firms..................................5
2.3 The value of the firm...............................................................................7
2.4 Impact of Hedging on Firm Value ...........................................................7
2.5 How price (cash flow) is connected with Hedging ..................................8
2.6 The value of the hedging strategy ..........................................................8
3 Theoretical Framework............................................................. 9
3.1 Tobin’s Q ................................................................................................9
3.2 The choice of approximation ................................................................11
3.3 Earnings Before Interest and Taxes .....................................................11
4 Empirical Findings.................................................................. 13
4.1 Data and Sample Description...............................................................13
4.2 Sample .................................................................................................13
4.3 Data Analyze ........................................................................................13
4.4 ANOVA.................................................................................................15
4.5 T-test ....................................................................................................16
4.5.1 One-Sample Test .................................................................................17
4.5.2 Independent Samples T-test ................................................................17
4.6 Chi-Square test ....................................................................................18
5 Analysis and Conclusions ..................................................... 20
References ................................................................................... 22
Appendix ......................................................................................... i

iii
Equations
Equation 3-1 – Firm Value ..................................................................................9
Equation 3-2 – Tobin's Q.....................................................................................9
Equation 3-3 – Theoretical Q ratio ....................................................................10
Equation 3-4 – Approx Q...................................................................................11
Equation 3-5 – EBIT..........................................................................................11

Figures
Figure 2-1 – Firm value and exchange rate ........................................................5
Figure 2-2 – Firm value and exchange rate ........................................................6
Figure 2-3 – Hedge Versus No hedge.................................................................7

Tables
Table 4-1 – Decriptives .....................................................................................15
Table 4-2 – ANOVA ..........................................................................................15
Table 4-3 – Test of Homogeneity of Variances .................................................15
Table 4-4 – Decriptives (100 percent hedge vs. no-hedge and some hedge)...16
Table 4-5 – ANOVA (100 percent hedge versus no-hedge and some hedge) ..16
Table 4-6 – One-Sample Statistics....................................................................16
Table 4-7 – One-Sample Test ...........................................................................17
Table 4-8 – Independent Samples Group Statistics ..........................................17
Table 4-9 – Independent Samples Test ............................................................18
Table 4-10 – Crosstabulation of the Chi-Square test ........................................18
Table 4-11 – Chi-Square Test ...........................................................................19

Graphs
Graph 4-1 – Tobin’s Q with respect to Hedge percentage ................................14
Graph 4-2 – EBIT and Tobin’s Q.......................................................................14
Graph 4-3 – Comparison between No Hedge versus Hedge with respect to
Tobin’s Q ..............................................................................................15

iv
 Introduction

1 Introduction
Hedging is according to Investopedia (2006), “Making an investment to reduce the risk of adverse
price movements in an asset. Normally, a hedge consists of taking an offsetting position in a related secu-
rity”.
Hedging is not a new phenomenon; companies have hedged for quite some time. How-
ever, in latter years, a discussion about the effectiveness of hedging has emerged. If it will
generate more value to the firm than if the firm does not hedge.
The globalization of goods and capital markets has led to an increasing numbers of firms
that have to make hedging decisions such as if and how to hedge their foreign exchange
exposure. A large number of instruments can be used to construct a hedging strategy, from
derivative securities, foreign direct investment, and sourcing policies. Studying why and
how firm hedge their currency exposure is important, risk minimization is is one reason. It
is also of great importance to know and to understand how exchange rate volatility affects
the economic activity. To understand the impact of exchange rate volatility, it seems essen-
tial to know what kind of hedging instruments that are available, what the transaction costs
are, and how firms will make use of these instruments. Authors claim that the absence of a
link between exchange rate volatility and trade, results from firms using forward contracts
to hedge their exchange rate exposure (Feldstein, 1997).
For many companies exchange rate movements are a major source of uncertainty. Due to
rapid globalization of the business environment over the last decades, few firms can be
purely domestic and unaffected by changes in the exchange rate. This view is shared by
many economists, financial analysts and corporate managers, that exchange rate affect a
firm’s value and thereby also the price of its stock (Bartov & Bodnar, 1994).
The risk of the foreign currency exchange consists of exchange influencing the firm’s profit
and equity in a negative way. The exchange exposure arises in connection with the payment
flow in foreign currency (transaction exposure) and when translating foreign subsidiaries
balance sheets and income statements into SEK (Swedish Crowns).
The exposure to foreign exchange risk is why firms hedge which is a process where a firm
can be protected from unanticipated changes in exchange rate. As firms get bigger and
more global, the level of international activity increases. Therefore, firms need to find an
appropriate hedging strategy.
In general, firms hedge to reduce effective corporate taxes, risk aversion and the probability
of financial distress. However, hedging might not benefit all firms, which are why hedging
strategies varies between different firms, but hedging is considered to be a primary objec-
tive to financial managers according to Rawls and Smithson (1990), Even if the fact is that
hedging is viewed as very important, one important question is therefore, is it worth while?
The main idea with hedging is that it should minimize risk and even increase the firm value.
Finance theory according to Nance, Smith and Smithson (1993) indicated that hedging in-
creases a firm’s value by reducing expected taxes and expected costs of financial distress.
This view is not accepted by all and in the 1950s Modigliani and Miller (1958), stated with
their Modigliani-Miller Theorem, that the way of financing does not determine the value of
the firm. This means that, managing risk does not give any extra value to the firm, but may

1
 Introduction

instead lower its value due to the cost of the hedging instrument and administrative costs
associated with the hedge.
Exchange-rate movements affect expected future cash flows, and therefore the value, of
large multinationals, small exporters (importers) and import competitors, by changing the
home currency value of foreign revenues (costs) and the terms of competition.
In theory companies can hedge away their exchange rate exposure, which implies a zero
correlation between the stock price of the firm and the exchange rate. This is quite hard to
deal with since few companies explain their hedging strategies in their reports. In Allayan-
nis and Ofek (2001), the link between exposure and the use of currency risk is analyzed.
They investigate whether the use of currency derivatives reduce the exchange rate expo-
sure. They also examine firms that use foreign currency derivatives for hedging or for
speculative purposes. Their findings that firms who use derivatives depending on exposure
factors and on variables highly associated with size and R&D expenditures. The level of de-
rivatives used depends on a firm’s exposure through foreign sales and trade. Considering
the large involvement in foreign sales and the high level of internationalization, this kind of
research is important.
Friberg and Nydahl (1999) show that the stock market, as a whole, is more exposed to
changes in the effective exchange rate, the more open the economy is. It is thereby quite
surprising that the major part of all this kind of research is done in perhaps the most closed
economy of the OECD countries. Nydahl (1999) states in his report that Swedish firms are
more exposed to exchange rate changes compared to previous studies with US. Further,
Nydahl (1999) also believes that the use of currency derivatives appears to reduce the ex-
change rate exposure of firms. In contrast to U.S companies, Swedish companies, as re-
flected in the stock price, seem quite sensitive to movements in the exchange rate (Nydahl,
1999).
The question is now, should companies hedge or not? Culp and Miller (1995) argue that
most value-maximizing companies do not hedge. But there are also several surveys and pa-
pers that argue the opposite that companies should hedge (Allayannis and Ofek, 2001).
In the modern global world, where people are doing businesses all over the world and
where all firms need to have an international mind, currency hedging is important. With in-
creasing globalization in the market, many companies choose to hedge currency. Hedging
currency is done by almost all kinds of different international firms. As long as the ex-
change rate fluctuates and firms are doing business in different countries, there is a possible
gain from hedging. Also what found interesting is to see how these currency hedges might
affect the underlying firm, will a hedge generate any extra value to the firm. The hypothesis
for this thesis is the following and this is also the main purpose to fulfill with the research
made within this subject:

H0: Hedging has an impact on the firm value and adds value to the firm that would
not be gained without hedging.
H1: Hedging does not add any value to the firms in this research.

2
 Introduction

The great difference in opinion between different authors within this field makes it even
harder to determine whether or not hedging should be used or not. If we assume that there
is a gain from hedging, in the form of risk minimization, how will the hedge affect the un-
derlying firm, will hedging lead to a higher value of the firm compared to firms that do not
hedge their currency? With the knowledge that earlier empirical work has shown that this is
actually the fact, at least in the American market in the 1990’s. Can this also be the case in
the Swedish market and thus, the definition of this problem is set as a hypothesis that
hedging affects the firm value and also adds value to the firm.
This thesis contributes to the literature on hedging, since it takes on a Swedish perspective.
There has been as mentioned, several studies within in this subject, but none on the Swed-
ish market as far as I know. Only the American and Canadian markets are represented.
Another argument for that hedging may not be necessary is that if it is possible to predict
future exchange rates, there is no need to hedge against exposure of foreign risk.
The most valid choice of method for this kind of research is to use a quantitative approach
because of the measurements and interpretation of numerical data. To be able to fulfill the
purpose, a financial database, Amadeus, was used to collect information and data on the
specific companies used in this thesis. Also annual reports from the specific companies,
was used to fulfill the purpose.
The delimitations of this research is to the Swedish market, where the 50 largest companies
are ranked in order by total assets. The research is to find out if there can be found a rela-
tionship between companies that do hedge currency compared to those companies that do
not hedge their currencies. The use of Tobin’s Q is used as a way to analyze different com-
panies, in a market value perspective. This to find out if the set hypothesis holds. The ver-
sion of Tobin’s Q that is used is the best alternative for a research like this, since this ver-
sion of Tobin’s Q gives a measurement to analyze the different companies compared to
each other.
The rest of the thesis is organized as follows. Chapter 2 gives a background to how hedging
can increase the value of the underlying firm. In chapter 3 the theoretical framework for
the analysis is presented and explained. The empirical findings are presented in Chapter 4.
The analysis and conclusion are presented in Chapter 5 which concludes the research of
this thesis.

3
 Background

2 Background
This chapter describes how hedging actually can increase the value of an underlying
firm, but also examples can also show how it could be the opposite. Therefore, this
chapter is important due to the fact that there are aspects that has to be known in order
to understand why and how hedging may increase the market value of the underlying
firm.

2.1 Hedging
When the financial market is deficient, hedging can directly affect the volatility of cash
flows. When price falls, producer will lose potential revenue if they do not use contracts or
options to hedge against the risk of price volatility. When income of a firm surges, tax li-
ability of the firm will increase the context of a convex tax schedule. In this case, hedging
may help the firm to level its cash flow, but also to avoid volatility of the cash flow exacer-
bated by the tax regime. Theoretical literature concerning hedging, discuss three main mo-
tivations for hedging. First, hedging is used to reduce financial distress and avoid underin-
vestment. Second, it is used to reduce expected tax costs. Third, hedging may ease the
manager's personal risk exposure (Smith & Stulz, 1985).

2.1.1 Financial Distress and Underinvestment

High volatility of cash flow may cause a difference between the available liquidity and fixed
payment obligations, thus the managers need to consider and use hedging. Smith and Stulz
(1985) analyze the impact of hedging on expected bankruptcy costs, they found that hedg-
ing may reduce the impact of financial distress of a firm, and also lower its expected bank-
ruptcy costs, and thereby also increases its debt capacity and firm value. Mayer and Smith
(1990) also found that the firm, by reducing cash flow volatility through hedging, can effec-
tively reduce bankruptcy costs, minimize the loss of tax shields. From a theoretical perspec-
tive, Froot, Scharfstein and Stein (1993) note that hedging may help companies to maintain
internal funds available for good investment opportunities and thus avoid underinvest-
ment. Without risk management, firms are sometimes forced to pursue less optimal in-
vestment opportunities, because low cash flow may prevent firms from pursuing optimal
investment opportunities. Therefore, everything else equal, the more difficulties firms face
in obtaining external financing, the less sufficient cash flow there will be, which results in a
higher hedge premium paid by the firm.
By analyzing cash flow in a two-period investment/financing decision model, Froot et al.
(1993) found that firms with costly external financed projects would be better of when us-
ing risk management to reduce the influence of external financing on these projects.

2.1.2 Expected Tax Costs

Smith and Stulz (1985) discuss the tax-induced explanation for risk management. In the
presence of a convex tax schedule, the firm can employ risk management to reduce the
volatility of taxable income that would otherwise be exacerbated by expected tax liabilities.
The firm tends to hedge when it has high leverage, shorter debt maturity, lower interest
coverage, less liquidity, and high dividend yields since it wants and needs a stable cash flow.
Therefore, a reduced volatility of the taxable income will generate a greater firm value.

4
 Background

2.1.3 Managerial Risk

According to Smith and Stulz (1985), risk averse managers tend to use hedging if they have
a direct interest in the business earnings, and if it is too costly to hedge for their own ac-
counts. Smith and Stulz (1985) noted that managers that hold more stocks of their own
firm emphasizes more on risk management than those that are holding more options. This,
because stocks provide a linear payoff to the managers whereas options provide convex
payoffs. DeMarzo and Duffie (1995) pointed out that hedging may serve as a signal of
managerial ability to external investors. Among empirical studies, Tufano (1996) examined
hedging activities of 48 North American gold mining companies and finds that firms
whose managers holds more options, use less risk management and firms whose managers
holding more stocks use more risk management. This finding is the same as with the pre-
diction of Smith and Stulz (1985).

2.2 Background to how Hedging adds Value to Firms

Exchange rate variability will cause the profits, and the value of an exposed firm, to either
generate a higher or a lower value of the firm. Economic exposure is concerned with the
sensitivity of the cash flow to exchange rate. Should a firm attempt to lower exposure by
using financial instruments? There are some relevant reasons supporting this. In a perfectly
frictionless world financial hedging would not add any extra value to the firm, and in this
case, no.
The Modigliani-Miller theorem states that there is no way for a firm to add extra value
through hedging, but this is in a perfect world without taxes and transaction costs. The real
world with transaction costs, taxes, and sometimes little information, makes risk manage-
ment a good idea.
A firm is affected by the exchange rate in a linear fashion as shown in figure 1.

Value of firm

Exchange rate

Figure 2-1 – Firm value and exchange rate

Here, think of the value only as the discounted flow of future cash flows. In a one period
setting, value and cash flow/profits would be equal. A linear relationship means only that
the cash flows increase by the same amount when the exchange rate depreciates as cash
flow decrease when the exchange rate appreciates. The expected value of cash flows under
variable exchange rates is the same as the value of cash flows would be if the exchange rate
were constant and equal to its mean. Assume that we are about to receive 10,000 Euro. We

5
 Background

know the amount in Euro, but since have not received the payment and the current ex-
change rate is uncertain the expected cash flow will be exposed. To make this illustration
simple, let us assume that the current exchange rate against the Euro for our home country
is 1, the amount is worth 10,000 in our home currency. A linear exposure means that if our
currency depreciates by 10 percent it will be worth 11,000 and if it appreciates it will be
worth 9,000. For equal sizes of exchange rate changes, we will loose or gain the same
amount. In this case variability of the exchange rate does not affect the expected value of
the profit.
Assume now that there is a 50 percent chance that the exchange rate will strengthen by 10
percent and a 50 percent chance that it will weaken by 10 percent. The expected value is
now 0.5 * 9,000 + 0.5 * 11,000 = 10,000 Euro. This is the same as the realized value if the
exchange would not fluctuate and will thus be equal to 1, and also the same as if there were
equal chances of the exchange rate being 5,000 or 15,000. Variability in this case does not
affect the expected value. What we in this case gain in good times are same we lose in bad
times. In this case, there is no reason for managing risk (Eiteman, Stonehill & Moffet,
2004).
Instead, now the relationship looks like figure 2.

Value of firm

Exchange rate

Figure 2-2 – Firm value and exchange rate

Here the value increases less when the exchange rate is more favorable, than if decreases
when there is an equally large chance in the opposite direction. Assume that the exchange
rate weakens by 10 percent we only receive 10,500 units of our currency. If our domestic
currency strengthens by 10 percent, we receive 8,500 units of our currency. The value of
the firm and the exchange rate with a concave relationship: 0.5 * 10,500 + 0.5 * 8,500 =
9,500 Euro. This is less than the 10,000 that we were about to receive, if the exchange rate
were equal to its mean, 1. In this case, the variability of cash flows decreases the expected
cash flow and also the value of the firm (Eiteman et Al., 2004).
With these examples one is in position to understand why risk management can increase
the value of the firm, or why variability lowers the value of the firm.
What are the mechanisms that create a relationship like the one in figure 2? Taxes might be
an explanation. When paying taxes on profit, it will make the line flatter and generate posi-
tive profits (Friberg, 1999).

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 Background

2.3 The value of the firm

According to financial theory, a firms value is equal to the net present value of all expected
future cash flows. The fact that these future cash flows are expected emphasizes that they
are uncertain (Eiteman et Al., 2004).
If the reporting currency value of many of these cash flows is changed by exchange rate
fluctuations, a firm that hedges its currency exposure reduces some of the variance in the
value of its future expected cash flows. Currency risk can therefore be defined as the vari-
ance of the expected cash flows, which arise from unexpected exchange rate changes
(Eiteman et Al., 2004).
Figure 3 shows the distribution of expected net cash flows of the individual firm. Hedging
these cash flows narrows the distribution of cash flows about the mean of the distribution,
which means that currency hedging reduces risk. This reduction of risk is not the same as
value adding or return for the company. The value of the firm depicted in figure 3 would
be increased only if hedging actually shifted the mean of the distribution to the right. If
hedging is not free, the firm has to spend resources to undertake hedging activity. Hedging
will add value only if the rightward shift is large enough to cover the costs of hedging
(Eiteman et Al., 2004).

Hedged

Unhedged

NCF Expected Value, E (V) NCF

Figure 2-3 – Hedge Versus No hedge

Where:
NCF = Net Cash Flow

2.4 Impact of Hedging on Firm Value

Allayannis and Weston (2001) directly examine the relationship between foreign currency
hedging and firm value measured by Tobin's Q ratio, based on a sample of 720 American
non-financial firms with total asset of more than $500 million. By adding some control
variables such as profitability and leverage into the regression model, they found that hedg-
ing is definitely related to firm value and that firm’s with hedging have, on average, 4.87
percent higher firm value than those without hedging. Geczy, Bernadette and Schrand
(1997) analyze foreign currency derivatives of Fortune 500 companies and found that hedg-

7
 Background

ing for foreign currency risk is more difficult to evaluate in multinational companies be-
cause the impact of hedging can be unclear by many other factors such as foreign sales,
foreign denominated debts.

2.5 How price (cash flow) is connected with Hedging

According to Mello and Parsons (2000) a firm with no financial constraints does not in-
crease the firm value by hedging, but the higher the constraints, the greater is the potential
value from hedging. They also argue that the value of the hedge depends on the design or
plan of the hedge strategy.
An increase in price increases the value of the firm, but only a small portion of this increase
in value is seen as an immediate cash flow. On the other hand, a potential loss on the hedge
must be paid in cash immediately. One might think that a hedge would create its own li-
quidity. If a hedge successfully locks in the firm’s value, then by the definition short-term
losses on the hedge are precisely matched by an increase in expected future cash flows and
as a result the short-term losses should be easily financed.
The financial risk created by the hedge itself is an important factor in determining the op-
timality of the hedge and how it can contribute to add value. A weakly conceived hedge can
increase the expected costs of financing, tightening the financial constraints and lower the
value of the firm.
This is a huge problem and the fact is that every hedging strategy comes with a loaning
strategy (Mello & Parsons, 2000).

2.6 The value of the hedging strategy

For the financially unconstrained firm there is no advantage of hedging. Since all hedges
are reasonably priced, a hedge can only change the pattern of a firm’s future cash flows, not
the firm’s value.
This is not case for the financially constrained firms’. Since the value of a dollar inside the
firm can be higher than the value of a dollar outside the firm, it becomes possible that a
hedge which is priced reasonably on the market nevertheless adds value to the firm. A
hedge is valuable if it moves cash from states in which the firm’s own value of liquidity is
high. By reducing expected costs of financing, hedging lowers financial constraints for the
firm and increases firm’s debt capacity (Mello & Parsons, 2000).

8
 Theoretical Framework

3 Theoretical Framework
The theoretical framework presented in this chapter is of great importance in order to
get a tool work in order to analyze selected companies. This chapter will give an under-
standing of the theory used.

3.1 Tobin’s Q
The Tobin’ Q which is a formula to ease investment analysis, was initially used to simplify
an investment analysis and used as a measure of how to make good investments.
When the firm value (Q-value) is higher than one, it implies that the firm has some control
of intangible assets such as patents that could lead to high future growth. When the Q-
value is lower than one, the firm has to pay more than it gets, which means that the market
value is less than the replacement cost of assets. A Q-value of two implies that the specific
firm is valuated to the double cost of its own assets, this is very good for the company, and
this is seen as a great investment. A value of one means that the company neither makes a
loss nor a profit (Tobin, 1969).
Simply expressed, the value of a firm is according to Tobin (1969):

Firm value = replacement cos t of assets + value of growth options

Equation 3-1 – Firm Value

market value of a firm

Tobin' s Q =
replacement cos t of its assets

Equation 3-2 – Tobin's Q

The calculation of a firm’s or a company’s assets is done in a couple of different ways and
it is up the specific firm to decide how to calculate its assets. The cost of reproduction takes
into account the cost for the company to construct an alternative asset using the same ma-
terials and production as the initial ones at current prices.
The cost of replacement relates to the cost of replacing the assets at current prices to modern
materials and standards. What is also important is to evaluate the time it takes to replace
the assets. Equation 2 is the theoretical version of how to calculate Tobin’s Q (Tobin,
1969).
Tobin recommended that there should be a combination of the market value and their re-
placement cost’s of all companies on the stock market (Tobin, 1969). When the assets are
priced appropriately in the capital market, the Q-value should and would be equal to one.
The change in firm’s Q is then a measurement of the change of the firm value in the capital
market. In this research, the theoretical version of Tobin’s Q used is the following (Tobin,
1969):

9
 Theoretical Framework

Book value of liability + Market value of common stock

Q=
Book value of total asset

Equation 3-3 – Theoretical Q ratio

This equation is the original version of how to calculate the Q-value of a firm. When decid-
ing on an investment, in this case an investment is seen as a hedge, the firm must valuate
the expected returns to the investment. This valuation can be done in a number of differ-
ent ways, all with different approaches and strategies. One method is to evaluate the target
firm’s assets. However, the most widely used asset-based valuation is the Tobin’s Q, which
according to Tobin includes all information a firm has to know to make a good investment
(Tobin, 1969).
The model can be used to make several different analyses in addition to investment profit-
ability, as for an example valuation of companies. In this case one measure could be how
the market is valuing a company in relation to its own assets and debts. In order to be able
to use the Q-value for showing the relation between the market value of the company,
debts are important and must be included into the equation (Tobin, 1969).
In the original definition of Tobin’s Q, an investment with a Q-value larger than one is
profitable. If the theory is used to analyze a company’s market value this would imply that
Q-values higher than one shows that the market value exceeds the re-obtaining value. The
company then has a possibility to invest or expand its activities to a positive NPV (Net Pre-
sent Value) (Lindenberg, 1981).
A high Q-value may depend on positive market expectations, meaning that investments
made by the company are generating, or expects generating, a positive cash flow (Linden-
berg, 1981). The Q-value may also depend on the company’s position on the market. For
instance, if a company with an almost monopolistic position, most often has a higher Q-
value than a company in a highly competitive intensive market. Companies with high Q-
values are often those producing unique goods or services, which generate monopolistically
profits. If a market is distinguished by absolute competition, the Q-value should be close to
one since competition drives the market value towards the re-obtaining value, a one Q-
value (Lindenberg, 1981).
A company with a low Q-value often finds itself in a market that is either highly regulated
or has a high degree of competition. It might then be hard to know which of the factors
that might influence the Q-value the most. A third explanation to why a company might
have a low Q-value may be that it is operating in a dying business or without money (Lin-
denberg, 1981).
Another reason why companies Q-value differs depend on how long they have been oper-
ating on the market. There are reasons to believe that older and more stabile companies
operating on the market for a longer time are exposed to higher competition and which
means that they also have a lower Q-value than younger companies. Originally the theory is
complex and hard to work with, which has been pointed out by Lindenberg and Ross
(1981). To be able to use the Q-theory in this study, an approximation of the Tobin’s Q by
Chung and Pruitt (1994) are used.

10
 Theoretical Framework

3.2 The choice of approximation

The formula of Tobin’s Q is complex and demands access to large databases, as the study
of Lindenberg and Ross (1981) describes.
In order to make a useful analysis of the Tobin’s Q, a simplified approximation that gives
equivalent results but with less need of data material and simplified calculations, is used.
There are several different approximations that can be used to estimate Tobin’s Q. the ap-
proximations that has been taking into consideration are Chung and Pruitt (1994). Chung’s
and Pruitt’s approximation coincide with 96.6 percent. An additional advantage is that the
latter could be performed with data that are more accessible. This motivates the choice of
the approximation developed by Chung and Pruitt. In this model the calculations are some-
what simplified but still gives us the same result as the original formula by 96.6 percent.
The approximated Tobin’s Q is defined as follows:

( MVE + PS + DEBT )
Approx Q. =
TA
Equation 3-4 – Approx Q.
Where:
MVE = (Market Value of Equity)
PS = Preference Stock
DEBT = The sum of the firms short- and long-term debt
TA = Total Asset

3.3 Earnings Before Interest and Taxes

EBIT is an indicator of a company's profitability according to [Link]. It can also
be explained as the earning power the possesses. It is calculated as revenue minus expenses,
not taking tax and interest into account. EBIT is also referred to as "operating earnings",
"operating profit" and "operating income". The formula to calculate EBIT is as follows:

EBIT = Revenue – Operating Expenses

Equation 3-5 – EBIT

In other words, EBIT is all profits before taking into account interest payments and
income taxes. An important factor contributing to the widespread use of EBIT is the way
in which it nulls the effects of the different capital structures and tax rates used by different
companies. By excluding taxes and interest expenses, the figures is on the company's ability

11
 Theoretical Framework

to profit and thus makes for easier cross-company comparisons (EBIT – Investope-
[Link], 2006).

12
 Empirical Findings

4 Empirical Findings
In this chapter the data and the interpretations is presented from the empirical analysis
made on the 51 largest companies located in Sweden. First a description of the selected
data and then the actual data set analysis, done in SPSS, in order to get the relevant in-
formation out of the data set.

4.1 Data and Sample Description

The data set selected for the analysis is selected out of the 51 largest companies located in
Sweden, based upon total assets. The selected information comes from the companies an-
nual reports, this to get the latest numbers, from 2005-12-31. The selected companies have
a total asset of 2 098 494.93 M kr, where the 10 largest companies stock is 37.2 percent of
the total 51 companies asset’s. This is why the sample only includes the 51 largest firms,
since the research if it had consisted of more, it would not be as accurate, and the differ-
ences between the largest- versus the smallest company would be too high.
The data picked is total asset, EBIT, long-, short-term liabilities, numbers of stocks and
price per stock. This information is needed to calculate total MVE (Market Value Equity),
and this to calculate Tobin’s Q. Only secondary data is used in the research.
The companies selected are not just based on size, but also the fact that they have different
currencies flowing in and out of the company, like exporters of a certain good or service.
This is needed in order to analyze if the currency hedge affects the underlying firm’s value.
(This is also, why the selection had to go further down in the list to get 51 companies since
some did not meet the set requirements, such as international trade, and thus did not have
any other currency to hedge against.)

4.2 Sample
The first step in the data analysis is to analyze the sample graphically. The eye can some-
times see things in a way that is not possible to see in a table. The use of descriptive statis-
tics to provide relevant measures, to get mean, mode, standard deviation, and variance.
These findings are placed in the appendix. After that, an ANOVA and a T-test was done to
illustrate the difference between the two groups (hedge and no-hedge) within the research
were. The final test to find a relation between the groups, this was done with a Chi-square
test.

4.3 Data Analyze

The first step in the empirical research was to analyze the firm’s Tobin’s Q considering
how much of their cash flow they hedged. This was done in order to find out whether
there is a relation between a high Tobin’s Q when hedging a higher percentage, or a low Q-
value when hedging a lower percentage. The result is presented in the graph below. (Graph
1)

13
 Empirical Findings

Graph 4-1 – Tobin’s Q with respect to Hedge percentage

8,000

6,000

Tobin's Q4,000

2,000

0,000

0,75 0,80 0,85 0,90 0,95 1,00

Hedge %

As shown in this graph, there is not a significant difference between companies that hedge
100 percent to those who hedge 75 percent in the value of Q. What can be seen is though;
the majority of the selected companies hedge all their inflow of money. There is an outlier
that hedge 100 percent and has a Q-value of 7.720. In this case that is because this com-
pany has none or very low debt, which leads to a very high Q compared to many other
companies in this selection. However, except from this outlier, Q is normally distributed in
all percent ranges.
The second test was to plot EBIT and Tobin’s Q to find a possible relation between them,
if it is possible to see a connection between them both.

Graph 4-2 – EBIT and Tobin’s Q

40000

30000

EBI
T 20000

10000

0,000 2,000 4,000 6,000 8,000

Tobin’s
Q

14
 Empirical Findings

Analyzing Graph 2, one can see that EBIT and Tobin’s Q is not followed by each other. In
many cases a high Q-value leads to a high EBIT. One can also see that there is no system-
atic pattern in this graph. In this graph as well as the previous. Where one is the same as in
the previous graph, a Q-value of 7.720 and one with an EBIT-value of 33.084. Hennes &
Mauritz are the company with Q-value at 7.720 which is way higher than the average Q.
This may be explained by the fact that H&M has none or very low debt, which increases
the value of Q. An other example is WM-Data that has the lowest Q-value of 0.206. An
explanation behind this low number might be that VM-Data acts in a tougher business, the
stock price is lower than other similar companies due to a pressure in the market.
The third example illustrated in the two graph’s below shows a comparison between No
hedge compared to Hedge with respect to Tobin’s Q, shown in scatter diagrams. The ones
who Hedge, on the left graph and the ones that do not hedge on the right one.

Graph 4-3 – Comparison between No Hedge versus Hedge with respect to Tobin’s Q

In the left graph (Hedge), the mean is 1.80 and one can see that most companies have a Q
in that range. The right (No Hedge) shows a more spread Q over that sample, this is per-
haps the case due to less observations. The mean for this sample is 1.79. Therefore, the dif-
ference between of them is not significant.

4.4 ANOVA
A t-test is done in order to find out whether or not Tobin’s Q differs significantly between
the two groups. In this case, a nominal variable, the Hedge Dummy, divides the No-hedge
and the Hedge variable.
To perform this t-test, one has to perform a one-way analyze of the variance and create an
ANOVA-table. The ANOVA-table compares the means of the samples or groups in order
to make inferences about the means. The assumptions behind the ANOVA are the follow-
ing: Observations are independent, variances on the dependent variable are equal across
groups, and the dependent variable is normally distributed for each group.
The use of the One-way ANOVA procedure is used because there is only one independent
variable.

15
 Empirical Findings

Table 4-1 – Decriptives

Descriptives

tobinsq
95% Confidence Interval for
Mean
N Mean Std. Deviation Std. Error Lower Bound Upper Bound Minimum Maximum
0 43 1,78542 1,155126 ,176155 1,42992 2,14091 ,206 7,720
1 8 1,79750 ,901602 ,318764 1,04374 2,55126 ,871 3,449
Total 51 1,78731 1,111148 ,155592 1,47480 2,09983 ,206 7,720

Table 1 provides familiar descriptive statistics for the two groups of Tobin’s Q, where 0 is
the ones that hedge and 1 is the ones that do not hedge. It gives information about each
group’s means, standard deviation, minimum and maximum. We can see that in the hedge
group the highest Q is 7.720 and the lowest is 0.206. In the no-hedge group the numbers
are highest 3.449 and lowest 0.871.

Table 4-2 – ANOVA

ANOVA

tobinsq
Sum of
Squares df Mean Square F Sig.
Between Groups ,001 2 ,001 ,001 ,978
Within Groups 61,732 49 1,260
Total 61,732 51

The ANOVA table, (table 2) gives us both between-groups and within-groups sums of
squares, degrees of freedom etcetera. The main thing in this table that is of interest is the
column named Sig., if the Sig. value is less or equal than 0.05, then there is a significant dif-
ference somewhere among the mean scores.
Hence, in this research, this ANOVA table shows that there is not a significant difference
between the firms that do hedge compared to those who not hedge.

Table 4-3 – Test of Homogeneity of Variances

Test of Homogeneity of Variances

tobinsq
Levene
Statistic df1 df2 Sig.
,028 2 49 ,867

The test of Homogeneity of variances provides the Levene test to check the assumption
that the variances of the two groups (hedge, No-hedge) are equal, that is not significantly
different. If the value shown in table 3, the Sig. value is greater than 0.05, then the assump-
tion of homogeneity of variance is not violated. In this case the Sig. value is 0.867, which is
greater than 0.05, the assumption is then, not violated.

15
 Empirical Findings

Since the no-hedgers are quite few compared to the ones that actually hedge, a test was
done to see if there is a difference between a 100 percent hedge versus a lower or no-
hedge. This was done to be sure that there is not a relation between hedge and market
value even if we rearranged the hedges below 100 percent to be no-hedges.

Table 4-4 – Decriptives (100 percent hedge versus no-hedge and some hedge)

Descriptives

tobinsq
95% Confidence Interval for
Mean
N Mean Std. Deviation Std. Error Lower Bound Upper Bound Minimum Maximum
,00 31 1,9291 1,30258 ,23395 1,4513 2,4069 ,33 7,72
1,00 20 1,5675 ,69740 ,15594 1,2411 1,8939 ,21 3,45
Total 51 1,7873 1,11115 ,15559 1,4748 2,0998 ,21 7,72

In this test the no-hedge are together with the companies that do hedge some of their cur-
rency up to 99 percent to see if there is a correlation in this here (dummy 0 is 0-99 percent
and dummy 1 is 100 percent hedge). This test shows the same as the previous one, no sig-
nificant relation between hedging and a high Tobin’s Q.

Table 4-5 – ANOVA (100 percent hedge versus no-hedge and some hedge)

ANOVA

tobinsq
Sum of
Squares df Mean Square F Sig.
Between Groups 1,590 1 1,590 1,295 ,261
Within Groups 60,143 49 1,227
Total 61,732 50

This ANOVA table shows the same result, no significant correlation between them both.

4.5 T-test
After this we can now create a t-test to determine whether there is a significantly difference
between them, the No- hedge versus the hedge variable. The confidence interval is 95 per-
cent. We start by doing a One-sample T-test.

Table 4-6 – One-Sample Statistics

One-Sample Statistics

Std. Error
hedgedummy N Mean Std. Deviation Mean
0 tobinsq 43 1,78542 1,155126 ,176155
hedgedummy 43 ,00 ,000a ,000
1 tobinsq 8 1,79750 ,901602 ,318764
hedgedummy 8 1,00 ,000a ,000
a. t cannot be computed because the standard deviation is 0.

16
 Empirical Findings

The statistics shown in table 4 shows the number of companies with their mean, standard
deviation, both for hedging companies and non-hedging companies. The companies that
hedge is 0, and the non hedging companies is 1.

4.5.1 One-Sample Test

Table 4-7 – One-Sample Test

One-Sample Test

Test Value = 0
95% Confidence
Interval of the
Mean Difference
hedgedummy t df Sig. (2-tailed) Difference Lower Upper
0 tobinsq 10,135 42 ,000 1,785419 1,42992 2,14091
1 tobinsq 5,639 7 ,001 1,797500 1,04374 2,55126

With help of this One-sample test one can see that with the set hypothesis:
H0: β = 0
H1: β ≠ 0
In our case or research we have to accept H0, due to that the critical t-value is higher than
the estimated t-value. This t-test shows that there are no relationship between hedge and
Tobin’s Q in our sample. The relation is highly insignificant. The null hypothesis is ac-
cepted due to that the coefficients is zero, there is no relation between them.

4.5.2 Independent Samples T-test

One Independent samples t-test is done one want to compare the mean score. This kind of
test will tell whether there is a statistically significant difference in the mean score for the
two groups. An independent samples t-test was conducted to compare the Tobin’s Q
scores for hedging and no-hedging.

Table 4-8 – Independent Samples Group Statistics

Group Statistics

Std. Error
hedgedummy N Mean Std. Deviation Mean
tobinsq 0 43 1,78542 1,155126 ,176155
1 8 1,79750 ,901602 ,318764

Table 8 shows the number of companies in each group. It also shows mean and standard
deviation.

17
 Empirical Findings

Table 4-9 – Independent Samples Test

Independent Samples Test

Levene's Test for

Equality of Variances t-test for Equality of Means
95% Confidence
Interval of the
Mean Std. Error Difference
F Sig. t df Sig. (2-tailed) Difference Difference Lower Upper
tobinsq Equal variances
,028 ,867 -,028 49 ,978 -,012081 ,432177 -,880573 ,856410
assumed
Equal variances
-,033 11,746 ,974 -,012081 ,364200 -,807514 ,783351
not assumed

This Independent t-test shows the same as the One-sample test, that there is no relation
between hedging and Tobin’s Q, or with No-hedge and Tobin’s Q. This is because that the
significance level is higher than 0.05. This also means that the assumption of equal vari-
ances has not been violated. The t-value is -0.028. The column Sig (2-tail) tells us that there
is not a significant difference in the mean between the two groups, this since 0.978 is above
0.05.

4.6 Chi-Square test

The last test done to see if there is a relation between Hedge and Tobin’s Q within our
sample, thus conducting a Chi-Square test. It provides an indication of the strength of the
relationship between the two groups, if there is any. This is the last test and if there is no
relation shown here, we have to accept that within our sample at least, there is no relation-
ship between hedge and the underlying firm’s value calculated with help of Tobin’s Q.

Table 4-10 – Crosstabulation of the Chi-Square test

tobindummy * hedge Crosstabulation

hedge
,00 1,00 Total
tobindummy ,00 Count 25 0 25
Expected Count 21,1 3,9 25,0
1,00 Count 18 8 26
Expected Count 21,9 4,1 26,0
Total Count 43 8 51
Expected Count 43,0 8,0 51,0

18
 Empirical Findings

Table 4-11 – Chi-Square Test

Chi-Square Tests

Asymp. Sig. Exact Sig. Exact Sig.

Value df (2-sided) (2-sided) (1-sided)
Pearson Chi-Square 9,123b 1 ,003
Continuity Correctiona 6,945 1 ,008
Likelihood Ratio 12,215 1 ,000
Fisher's Exact Test ,004 ,002
Linear-by-Linear
8,945 1 ,003
Association
N of Valid Cases 51
a. Computed only for a 2x2 table
b. 2 cells (50,0%) have expected count less than 5. The minimum expected count is
3,92.

What can be seen from this table is that seen in footnote b, that one has violated the as-
sumption, that all our expected cell sizes are not greater than 5. Since this is the case in this
research, we can not conclude anything from this test.

19
 Analysis and Conclusions

5 Analysis and Conclusions

The analysis will start by stating that since almost all companies hedge their currency, it has
to be profitable for the firm, at least in the sense that they reduced their risk of loosing
money. The risk associated with the transaction is minimized. This is also the main purpose
why companies hedge their cash flow, to minimize a risk. It is now longer a speculative rea-
son as it was in the 1990’s where there was a large arbitrage to exploit.
The purpose of this thesis was to find out if one could find a relation between hedging cur-
rency and the underlying firm’s value, if there is a correlation between them, a high Tobin’s
Q with a currency hedge and a low Q with no currency hedge. The situation was that a
company should hedge its cash flow towards exposure aroused due to volatility in the ex-
change rate. A situation that accurs in daily basis, the exchange rate is never the same day
to day.
Using Allayannis and Weston (2001), paper “Use of Foreign Derivatives and Firm Market Value”
as a kind of starting situation, one may conclude that a firm’s value can be increased by
hedging its currency with help of derivatives. The fact that the paper was published in
2001, based on numbers and figures from 1990-1995, makes the paper less relevant since
the attitude towards hedging has changed quite drastic since then. Hedging was originally
used for speculative purposes but is today used as a risk-minimizing action to prevent ex-
change-rate exposure. Hedging has become more common and more non aggressive since
the arbitrage from it has decreased.. This has made the chance or possibility to increase the
firm-value less common, by just hedging the currency. One must also understand that since
this has been a common type of hedge, companies spend less money and resources on
hedging, which also leads to a decreased possible chance of increasing the firm value. This
can be seen when most companies use a specific type of hedge, where an outstanding
company takes care of it.
Performing this research on the Swedish market, a market that is more volatile and open
than the US market, the 50 largest companies was picked that has some kind of cash flow
in an other currency than its home currency. As described earlier, the relevance should de-
crease if taking more companies into account.
The Tobin’s Q is used as a measurement of the firm’s market value. It is relevant because it
is a simple way of calculating the market value of a firm and gives a good estimation of
how the company’s Q-value is, compared to the different companies. Comparing the data
sheet1 and Graph 3, the Q-value differs from 0.206 up to 7.720. This is a wide range and it
might be hard to draw any real conclusions from this. There are many different reasons
why a company has a high or low Q-value. For example positive market expectations, mar-
ket position, monopoly etcetera, are all relevant reasons for a high Q, and the opposite for
a low value. Time on market is also a reason to different values of Q.
Hennes & Mauritz has for example a Q-value at 7.720 which is way higher than the average
Q. This may be explained by the fact that H&M has none or very low debt, which increases
the value of Q. An other example is WM-Data that has the lowest Q-value of 0.206. An
explanation behind this low number might be that VM-Data acts in a tougher business, the
stock price is lower than other similar companies due to a pressure in the market.

1 See appendix, company information

20
 Analysis and Conclusions

LM Ericsson is also a company that differs from the others when looking at EBIT. LM
Ericsson’s EBIT is 33,084 M SEK which is almost twice as much as company number two
in the EBIT (See appendix).
The first test done was to find out if there is a relation between the percentage share of
hedge and Tobin’s Q. It was found that there was no significant difference between com-
panies that where hedging 100 percent to those that hedged 50 percent. The other test was
done in order to find a relation between EBIT and Tobin’s Q. And this one gave the same
result as the first one did, which showed no relation or correlation between them. There-
fore, the difference in market value between companies that hedge and those that do not
hedge is not significant. The residuals were plotted in a graph and this one showed that
there is no relation between hedging and Tobin’s Q. However, there is a normal distribu-
tion in both cases, (hedge and no hedge).
After these small graphs and simple tests, an ANOVA and a t-test was done on the se-
lected sample to see if there is a relation between hedging and Tobin’s Q. An additional test
was also done where the 100 percent hedges was compared to all the other, in order to see
if there were a relation, however this gave the same result as the other tests, that is, no rela-
tion. Both a One-Samples test and an Independent Samples t-test were performed and they
both gave the same answer, there is no relation or correlation between hedging and firm-
value.
The final test on this sample was to do a Chi-Square test, a test which should give us a indi-
cation if there is a relation, an indication of the strength of the relation between the two
groups. This test as well as the others gave the same answer.
When, as in this research, there are several tests done and they all show the same result,
one has to accept the answer. The answer to the set hypothesis is that hedging currency will
not increase the value of a firm, at least within the set delimitations with Tobin’s Q as the
reference for firm value. However, if hedging would not be good for the firm, there would
not be any hedges performed. In the sense that hedging is a risk minimization tool, it is
good for the firm. In a perfectly frictionless world, financial hedging would not add any ex-
tra value to the firm. Though, this is off-course not the case in the real world that is why
one can argue that there is potential gain from hedging, at least in a short-term period.
To conclude the thesis, what that can be drawn from this research is the following. There is
no relation between hedging and firm value, at least this is the case in the Swedish market
and with this sample. There are several reasons for a company to have a high Q-value as
well as a low Q-value, which can be the type of market the company acts in, expectations
of the company etcetera. One must also understand that the firm’s market value as well the
Q-value differs from time to time.
Started this research with testing the companies, I though that I could find a relation be-
tween a firm’s market-value and hedging, however along the way I realized that this would
not be the case. Even if I did not get the results that I first predicted, I still came across in-
teresting points why the relation, between the firm’s market-value and hedging and also
why this is not the case.
Further studies on this subject that can be done are to analyze a greater number of compa-
nies and with perhaps more different variables, such as leverage, profitability etcetera.

21
 References

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Earnings Before Interest and Taxes (EBIT), [Link], Retrieved 2006-04-25 from,
[Link]

Hedge, [Link], Retrieved 2006-09-25 from, [Link]

23
 Appendix – Company Information

Appendix
Company name Hedge Hedge EBIT Total Asset Long term Short term Total Debt
% debt debt
1 AB VOLVO Yes 100% 18,151,000,000 257,135,000,000 48,814,000,000 99,011,000,000 147,825,000,000
2 TELEFONAB L M ERICSSON Yes 100% 33,084,000,000 190,076,000,000 30,733,000,000 70,352,000,000 101,085,000,000
3 SKANSKA AB No N/A 4,798,000,000 18,216,000,000 9,390,000,000 69,000,000 9,459,000,000
4 AB ELECTROLUX Yes 75% 3,942,000,000 82,558,000,000 19,283,000,000 37,387,000,000 56,670,000,000
5 SVENSKA CELLULOSA AB SCA Yes 100% 1,928,000,000 135,220,000,000 35,881,000,000 42,229,000,000 78,110,000,000
7 SECURITAS AB Yes 100% 4,293,600,000 46,288,600,000 9,917,900,000 21,523,900,000 31,441,800,000
9 SCANIA AB Yes 90% 6,330,000,000 78,218,000,000 28,897,000,000 25,585,000,000 54,482,000,000
11 H & M HENNES & MAURITZ AB Yes 100% 13,172,900,000 33,183,200,000 0 6,484,600,000 6,484,600,000
12 ATLAS COPCO AB Yes 100% 9,403,000,000 54,955,000,000 13,448,000,000 15,699,000,000 29,147,000,000
13 NCC AB Yes 80% 1,748,000,000 27,110,000,000 4,348,000,000 15,883,000,000 20,231,000,000
14 AB SKF Yes 100% 5,327,000,000 40,349,000,000 11,671,000,000 10,445,000,000 22,116,000,000
15 TELE2 AB No N/A 3,510,000,000 68,283,000,000 11,422,000,000 21,493,000,000 32,915,000,000
18 SSAB SVENSKT STÅL AB (SSAB) Yes 100% 5,735,000,000 21,820,000,000 2,707,000,000 4,749,000,000 7,456,000,000
19 ASSA ABLOY AB No N/A 4,078,000,000 33,692,000,000 5,757,000,000 13,522,000,000 19,279,000,000
20 TRELLEBORG AB Yes 100% 1,779,000,000 24,960,000,000 7,167,000,000 7,680,000,000 14,847,000,000
21 PEAB AB Yes 100% 747,000,000 13,742,000,000 2,304,000,000 8,090,000,000 10,394,000,000
22 L E LUNDBERGFÖRETAGEN AB No N/A 5,597,000,000 65,761,000,000 18,040,000,000 10,324,000,000 28,364,000,000
24 SAAB AB Yes 100% 1,652,000,000 30,594,000,000 6,973,000,000 14,091,000,000 21,064,000,000
25 HOLMEN AB Yes 100% 1,973,000,000 32,183,000,000 2,899,000,000 4,349,000,000 7,248,000,000
29 GETINGE AB Yes 100% 1,802,800,000 9,589,400,000 3,304,600,000 1,553,600,000 4,858,200,000
33 HEXAGON AB Yes 100% 844,000,000 18,642,000,000 8,896,000,000 2,872,000,000 11,768,000,000
34 WM-DATA AB Yes 90% 393,800,000 81,069,000,000 2,657,200,000 2,629,400,000 5,286,600,000
35 INVESTMENT AB KINNEVIK Yes 75% 353,000,000 33,257,000,000 8,268,000,000 1,232,000,000 9,500,000,000
39 INVESTMENT AB LATOUR Yes 100% 342,000,000 11,414,000,000 263,000,000 2,475,000,000 2,738,000,000
41 BROSTRÖM AB No N/A 812,400,000 7,914,600,000 4,510,000,000 695,100,000 5,205,100,000
44 WALLENSTAM BYGGNADSAB Yes 100% 2,547,200,000 17,330,200,000 7,369,200,000 4,059,400,000 11,428,600,000
47 RATOS AB Yes 100% 2,505,000,000 22,101,000,000 5,157,000,000 5,498,000,000 10,655,000,000

i
 Appendix – Company Information

49 HUFVUDSTADEN AB Yes 100% 814,700,000 16,488,500,000 6,435,700,000 1,438,100,000 7,873,800,000

54 NIBE INDUSTRIER AB Yes 100% 310,100,000 3,125,300,000 1,291,000,000 803,300,000 2,094,300,000
55 SWECO AB Yes 100% 271,600,000 2,040,500,000 115,100,000 1,044,700,000 1,159,800,000
56 CLOETTA FAZER AB No N/A 313,900,000 3,145,800,000 276,900,000 441,600,000 718,500,000
50 HAKON INVEST AB No N/A 570,000,000 8,345,000,000 172,000,000 242,000,000 414,000,000
6 TELIASONERA AB Yes 75% 17,549,000,000 203,775,000,000 37,811,000,000 30,270,000,000 68,081,000,000
8 SAS AB Yes 90% 1,373,000,000 58,016,000,000 25,193,000,000 22,327,000,000 47,520,000,000
10 SANDVIK AB Yes 100% 9,532,000,000 59,562,000,000 14,742,000,000 20,313,000,000 35,055,000,000
16 AXFOOD AB Yes 90% 1,040,000,000 7,569,000,000 540,000,000 3,323,000,000 3,863,000,000
23 BOLIDEN AB Yes 100% 3,069,000,000 22,918,000,000 6,781,000,000 5,848,000,000 12,629,000,000
26 ALFA LAVAL AB Yes 100% 1,377,200,000 16,206,400,000 4,678,500,000 5,716,500,000 10,395,000,000
27 SWEDISH MATCH AB Yes 100% 2,825,000,000 16,806,000,000 5,956,000,000 5,767,000,000 11,723,000,000
28 NOBIA AB Yes 100% 954,000,000 7,918,000,000 2,354,000,000 2,380,000,000 4,734,000,000
31 CAPIO AB Yes 100% 1,024,000,000 15,978,000,000 8,339,000,000 3,007,000,000 11,346,000,000
32 JM AB Yes 75% 1,231,000,000 8,155,000,000 1,476,000,000 3,368,000,000 4,844,000,000
38 ENIRO AB Yes 90% 1,073,000,000 19,542,000,000 11,618,000,000 3,266,000,000 14,884,000,000
40 KUNGSLEDEN AB Yes 100% 1,304,100,000 27,469,700,000 18,003,600,000 2,816,800,000 20,820,400,000
43 OMX AB Yes 100% 910,000,000 10,612,000,000 1,608,000,000 4,255,000,000 5,863,000,000
45 LUNDIN PETROLEUM AB Yes 100% 2,013,158,000 77,623,730,000 2,823,401,000 1,256,306,000 4,079,707,000
46 FABEGE AB Yes 100% 3,349,000,000 25,893,000,000 12,589,000,000 2,577,000,000 15,166,000,000
48 CASTELLUM AB Yes 90% 1,712,000,000 21,378,000,000 11,522,000,000 916,000,000 12,438,000,000
51 SECO TOOLS AB Yes 75% 1,100,000,000 4,198,000,000 613,000,000 1,378,000,000 1,991,000,000
52 INDUTRADE AB No N/A 324,000,000 1,933,000,000 459,000,000 760,000,000 1,219,000,000
57 INTRUM JUSTITIA AB Yes 100% 503,600,000 4,136,000,000 1,424,700,000 1,395,200,000 2,819,900,000

ii
 Appendix – Company Information

Company name Total Stocks A-stock B-stock Stock Total MVE Tobin's
Price Q
1 AB VOLVO 425,684,044 135,520,326 290,163,718 374.50 159,418,674,478.00 1.392
2 TELEFONAB L M ERICSSON 16,132,258,678 1,308,779,918 14,823,478,760 27.30 440,410,661,909.40 3.037
3 SKANSKA AB 418,553,072 22,554,063 395,999,009 121.00 50,644,921,712.00 3.449
4 AB ELECTROLUX 308,920,308 9,502,275 299,418,033 206.50 63,792,043,602.00 1.483
5 SVENSKA CELLULOSA AB SCA 235,036,698 38,445,535 196,591,163 297.00 69,805,899,306.00 1.178
7 SECURITAS AB 365,058,897 17,142,600 347,916,297 132.00 48,187,774,404.00 1.769
9 SCANIA AB 200,000,000 100,000,000 100,000,000 287.50 57,500,000,000.00 1.799
11 H & M HENNES & MAURITZ AB 827,536,000 97,200,000 730,336,000 270.00 223,434,720,000.00 7.720
12 ATLAS COPCO AB 628,806,552 419,697,048 209,109,504 177.00 111,298,759,704.00 3.907
13 NCC AB 108,500,000 52,500,000 56,000,000 142.50 15,461,250,000.00 1.593
14 AB SKF 455,351,068 50,735,858 404,615,210 111.50 50,771,644,082.00 1.947
15 TELE2 AB 443,652,832 46,549,989 397,102,843 82.25 36,490,445,432.00 1.073
18 SSAB SVENSKT STÅL AB 90,900,000 67,200,000 23,700,000 269.00 24,452,100,000.00 2.291
19 ASSA ABLOY AB 90,900,000 19,175,323 346,742,711 125.00 11,362,500,000.00 0.981
20 TRELLEBORG AB 95,980,361 9,500,000 86,480,361 158.50 15,212,887,218.50 1.265
21 PEAB AB 87,195,944 9,805,702 77,390,242 102.00 8,893,986,288.00 1.476
22 L E LUNDBERGFÖRETAGEN AB 62,145,483 24,000,000 38,145,483 335.50 20,849,809,546.50 0.871
24 SAAB AB 109,150,344 5,254,303 103,896,041 170.00 18,555,558,480.00 1.324
25 HOLMEN AB 84,756,162 22,623,234 62,132,928 262.50 22,248,492,525.00 1.101
29 GETINGE AB 201,873,920 13,502,160 188,371,760 109.50 22,105,194,240.00 2.966
33 HEXAGON AB 69,900,111 3,150,000 66,750,111 217.01 15,169,302,688.55 1.482
34 WM-DATA AB 420,235,248 30,000,000 390,235,248 25.40 10,673,975,299.20 0.206
35 INVESTMENT AB KINNEVIK 263,981,930 50,197,050 213,784,880 74.25 19,600,658,302.50 0.987
39 INVESTMENT AB LATOUR 43,820,000 16,149,125 27,670,875 204.50 8,961,190,000.00 1.314
41 BROSTRÖM AB 32,622,842 2,125,728 30,497,114 160.00 5,219,654,720.00 1.360

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 Appendix – Company Information

44 WALLENSTAM BYGGNADSAB 65,500,000 5,750,000 59,750,000 93.50 6,124,250,000.00 1.044

47 RATOS AB 80,674,626 21,210,036 59,464,590 98.00 7,906,113,348.00 0.934
49 HUFVUDSTADEN AB 206,265,933 8,275,544 197,990,389 52.00 10,725,828,516.00 1.154
54 NIBE INDUSTRIER AB 23,480,000 3,290,064 20,189,936 235.50 5,529,540,000.00 2.687
55 SWECO AB 17,082,870 1,877,815 15,205,055 204.00 3,484,905,480.00 2.464
56 CLOETTA FAZER AB 24,119,196 4,660,000 19,459,196 235.00 5,668,011,060.00 2.378
50 HAKON INVEST AB 160,917,436 N/A N/A 93.50 15,045,780,266.00 1.853
6 TELIASONERA AB 4,490,457,213 N/A N/A 42.70 191,742,522,995.10 1.275
8 SAS AB 164,500,000 N/A N/A 106.00 17,437,000,000.00 1.120
10 SANDVIK AB 237,257,435 N/A N/A 370.00 87,785,250,950.00 2.062
16 AXFOOD AB 54,531,378 N/A N/A 222.00 12,105,965,916.00 2.110
23 BOLIDEN AB 289,387,169 N/A N/A 65.00 18,810,165,985.00 1.372
26 ALFA LAVAL AB 111,700,000 N/A N/A 172.00 19,212,400,000.00 1.827
27 SWEDISH MATCH AB 305,901,281 N/A N/A 93.50 28,601,769,773.50 2.399
28 NOBIA AB 57,679,720 N/A N/A 161.00 9,286,434,920.00 1.771
31 CAPIO AB 84,428,694 N/A N/A 141.50 11,946,660,201.00 1.458
32 JM AB 24,676,380 N/A N/A 352.00 8,686,085,760.00 1.659
38 ENIRO AB 182,102,392 N/A N/A 100.00 18,210,239,200.00 1.693
40 KUNGSLEDEN AB 45,500,688 N/A N/A 230.00 10,465,158,240.00 1.139
43 OMX AB 118,474,307 N/A N/A 110.50 13,091,410,923.50 1.786
45 LUNDIN PETROLEUM AB 257,140,166 N/A N/A 84.00 21,599,773,944.00 0.331
46 FABEGE AB 96,155,571 N/A N/A 151.50 14,567,569,006.50 1.148
48 CASTELLUM AB 43,001,677 N/A N/A 286.00 12,298,479,622.00 1.157
51 SECO TOOLS AB 29,093,538 N/A N/A 204.00 5,935,081,752.00 1.888
52 INDUTRADE AB 40,000,000 N/A N/A 86.25 3,450,000,000.00 2.415
57 INTRUM JUSTITIA AB 77,956,251 N/A N/A 73.00 5,690,806,323.00 2.058

iv