Corporate Foreign Exchange Speculation and Integrated Risk Management

Managerial Finance, Forthcoming

45 Pages Posted: 2 Jun 2012

See all articles by Tom Aabo

Tom Aabo

Aarhus University

Christos Pantzalis

University of South Florida

Marianna Hansen

Novozymes A/S

Date Written: June 1, 2012

Abstract

Purpose – The purpose of this paper is to investigate how non-finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non-financial firms.

Design/methodology/approach – We survey non-financial firms in a small open economy (Denmark) to investigate the extent of foreign exchange speculation and how it is related to the degree of non-finance departmental involvement in the management of exchange rate risks. We employ binary and ordered probit regression analysis.

Findings – We find a positive link between 1) the extent to which other departments than the finance department is involved in the management of exchange rate risks and 2) the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market.

Practical implications – Our findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases.

Originality/value – The findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously.

Keywords: Exchange rate exposure management, Selective hedging, Active speculation, Non-finance departmental involvement, Integrated risk management

JEL Classification: F23, G32

Suggested Citation

Aabo, Tom and Pantzalis, Christos and Hansen, Marianna, Corporate Foreign Exchange Speculation and Integrated Risk Management (June 1, 2012). Managerial Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2071994

Tom Aabo (Contact Author)

Aarhus University ( email )

Fuglesangs Alle 4
DK-8210 Aarhus
Denmark
+45 87 16 48 39 (Phone)
+45 86 15 01 88 (Fax)

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

Marianna Hansen

Novozymes A/S ( email )

Krogshoejvej 36
Bagsvaerd, 2880
Denmark

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