Why Spanish Firms Hedge with Derivatives: An Examination of Transaction Exposure
27 Pages Posted: 30 Jul 2007
Date Written: July 2007
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: Suggested Citation