An Empirical Analysis of Corporate Currency Risk Management Policies and Practices

53 Pages Posted: 22 Mar 2019

See all articles by Sungjae F. Kim

Sungjae F. Kim

Gardner-Webb University - Godbold School of Business

Don M. Chance

Louisiana State University, Baton Rouge - Department of Finance; Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Date Written: November 9, 2017

Abstract

Using a unique and extremely granular data set of complete currency spot and derivatives positions for 101 large non-financial corporations, we compare the stated currency risk management policies with the actual strategies executed by these companies. We identify a notable discord between their policies and their practices. We next find that these companies engage in a high degree of currency speculation that seems to be driven by market movements with the results strongest for the heaviest derivatives users. Finally, we show that these companies attempt to time the market even when they are engaged in hedging. Thus, the risk management policies and practices of non-financial corporations are far from what companies say they are and are evidence of a high degree of speculation and especially hedge timing in a market outside of their own core lines of business.

Keywords: currency risk management, derivatives, hedging

JEL Classification: F30, F31, G15, G32

Suggested Citation

Kim, Sungjae Francis and Chance, Don M., An Empirical Analysis of Corporate Currency Risk Management Policies and Practices (November 9, 2017). Pacific-Basin Finance Journal, Vol. 47, 2018, Available at SSRN: https://ssrn.com/abstract=3344628

Sungjae Francis Kim

Gardner-Webb University - Godbold School of Business ( email )

P.O. Box 7301
101 S. Main Street
Boiling Springs, NC 28017
United States
704-406-2321 (Phone)
704-406-2261 (Fax)

HOME PAGE: http://gardner-webb.edu/academics/areas-of-study/business/faculty-and-staff/sungjae-kim

Don M. Chance (Contact Author)

Louisiana State University, Baton Rouge - Department of Finance ( email )

2163 CEBA
Baton Rouge, LA 70803
United States

Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Baton Rouge, LA 70803-6308
United States
225-578-0372 (Phone)
225-578-6366 (Fax)

HOME PAGE: http://www.bus.lsu.edu/academics/finance/faculty/dchance/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
62
Abstract Views
424
rank
430,004
PlumX Metrics