The Determinants of Corporate FX Speculation – Why Firms Increase Risk

Accepted September 4th, 2021 in: Journal of Risk Finance (in revised form)

33 Pages Posted: 18 Jul 2017 Last revised: 8 Sep 2021

Date Written: July 24, 2018

Abstract

Accepted September 4th, 2021 in: Journal of Risk Finance (in revised form)

To date, readers of financial statements are not able to identify speculation as risk-increasing activity from public corporate disclosures. We examine a unique regulatory environment, in which the regulating authority recommends additional FX-disclosures in excess of prevailing reporting standards and find that these optional publications enable, henceforth, the identification of speculative activities. Further, we help solve the puzzle of the determinants of speculation and find that frequent speculators are smaller, have more growth opportunities and possess lower internal resources, which indicates unprecedented empirical evidence for the convexity theories of Campbell & Kracaw (1999) and Adam, Dasgupta, & Titman (2007). Our findings substantiate the significance of an extended reporting with optional disclosures that might unlock numerous benefits for both share- and stakeholders.

Keywords: Corporate Risk Management, Speculation, Disclosure, Foreign Exchange

JEL Classification: G11, G32, G38, G39

Suggested Citation

Hecht, Andreas, The Determinants of Corporate FX Speculation – Why Firms Increase Risk (July 24, 2018). Accepted September 4th, 2021 in: Journal of Risk Finance (in revised form), Available at SSRN: https://ssrn.com/abstract=3001668 or http://dx.doi.org/10.2139/ssrn.3001668

Andreas Hecht (Contact Author)

University of Hohenheim ( email )

Fruwirthstr. 48
Stuttgart, 70599
Germany

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