Abstract

http://ssrn.com/abstract=460987
 
 

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


George Allayannis


University of Virginia - Darden School of Business

Ugur Lel


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

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.

Number of Pages in PDF File: 40

Keywords: Risk Management, Hedging, Corporate Governance, Firm Value

JEL Classification: G32, G34, F3

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Date posted: March 17, 2008 ; Last revised: September 30, 2011

Suggested Citation

Allayannis, George and Lel, Ugur and Miller, Darius P., The Use of Foreign Currancy Derivatives, Corporate Governance, and Firm Value Around the World (September 30, 2011). Darden Business School Working Paper No. 03-10. Available at SSRN: http://ssrn.com/abstract=460987 or http://dx.doi.org/10.2139/ssrn.460987

Contact Information

George Allayannis (Contact Author)
University of Virginia - Darden School of Business ( email )
Box 6550
Charlottesville, VA 22906-6550
United States
434-924-3434 (Phone)
HOME PAGE: http://faculty.darden.edu/allayannisy
Ugur Lel
Virginia Polytechnic Institute & State University - Department of Finance, Insurance, and Business Law ( email )
1016 Pamplin Hall (0221)
Blacksburg, VA 24060-0221
United States
Darius P. Miller
Southern Methodist University (SMU) - Edwin L. Cox School of Business ( email )
P.O. Box 750333
Dallas, TX 75275-0333
United States
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