Download This PaperThe Use of Foreign Currency Derivatives, Corporate Governance, and Firm Value Around the World
40 Pages Posted: 17 Mar 2008 Last revised: 25 Jul 2018
Date Written: September 30, 2011
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.
Keywords: Risk Management, Hedging, Corporate Governance, Firm Value
JEL Classification: G32, G34, F3
Suggested Citation: Suggested Citation
George (Yiorgos) 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
European Corporate Governance Institute (ECGI) ( email )
c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium
