Why Spanish Firms Hedge with Derivatives: An Examination of Transaction Exposure

27 Pages Posted: 30 Jul 2007

See all articles by Luis Otero González

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Milagros Vivel Búa

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Sara Fernandez Lopez

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Alfonso Rodríguez Sandías

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Date Written: July 2007

Abstract

The present paper analyses the reasons why Spanish quoted firms use derivatives to hedge against exchange-rate risk. Through the application of a Tobit model, the obtained results show that the variables related to the creation of value and the existence of scale economies are the main factors for hedging. In fact, the size, market to book ratio, and liquidity have been significant. Also, it has been obtained that the main variable that determines the volume of hedging is the level of exchange exposition. With regarding to foreign debt, we found that the companies use it as a complementary hedging instrument. Moreover, its use and quantity are explained by the volume of foreign sales only.

Keywords: derivatives, risk management, currency rate risk, hedging, Tobit

JEL Classification: F23, F31, G11

Suggested Citation

Otero González, Luis and Vivel Búa, Milagros and Fernandez Lopez, Sara and Rodríguez Sandías, Alfonso, Why Spanish Firms Hedge with Derivatives: An Examination of Transaction Exposure (July 2007). Available at SSRN: https://ssrn.com/abstract=1003358 or http://dx.doi.org/10.2139/ssrn.1003358

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain

Milagros Vivel Búa (Contact Author)

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain
981 563100 Ext.11606 (Phone)

Sara Fernandez Lopez

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain

Alfonso Rodríguez Sandías

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain
+34981563100 (11607) (Phone)
+34981563637 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
235
Abstract Views
1,877
rank
130,245
PlumX Metrics