The Use of Foreign Currancy Derivatives, Corporate Governance, and Firm Value Around the World
University of Virginia - Darden School of Business
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law
Darius P. Miller
Southern Methodist University (SMU) - Edwin L. Cox School of Business
September 30, 2011
Darden Business School Working Paper No. 03-10
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.
Number of Pages in PDF File: 40
Keywords: Risk Management, Hedging, Corporate Governance, Firm Value
JEL Classification: G32, G34, F3
Date posted: March 17, 2008 ; Last revised: September 30, 2011
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