The Use of Foreign Currancy Derivatives, Corporate Governance, and Firm Value Around the World

Authors

George Allayannis, Darden School of BusinessFollow
Ugur Lel, Department of Banking and FinanceFollow
Darius P. Miller, Finance DepartmentFollow

Publication Date

3-17-2008

Abstract

This paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty-nine countries with significant exchange-rate exposure. Derivatives can be used for managers’ self-interest, for hedging or for speculative purposes. We hypothesize that investors can appeal to a firm’s internal (firm-level) and external (country-level) corporate governance to draw inferences on a firm’s motive behind the use of derivatives, since well-governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers’ self-interest. Consistent with this explanation, we find strong evidence that the use of currency derivatives for firms that have strong internal firm-level or external country-level governance is associated with a significant value premium.

Document Type

Article

Keywords

Risk Management, Hedging, Corporate Governance, Firm Value

Disciplines

Finance

DOI

10.2139/ssrn.460987

Source

SMU Cox: Finance (Topic)

Language

English