Title

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

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

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