Currency Hedging and Corporate Governance: A Cross-Country Analysis

FEDS Discussion Paper No. 858

Indiana University Working Paper

47 Pages Posted: 28 May 2003 Last revised: 25 Aug 2015

See all articles by Ugur Lel

Ugur Lel

University of Georgia - Department of Banking and Finance

Date Written: November 17, 2009

Abstract

This paper examines the impact of the strength of governance on firms’ use of currency derivatives. Using a sample of firms from 30 countries over the period 1990 to 1999, we find that strongly governed firms tend to use derivatives to hedge currency exposure and overcome costly external financing. On the other hand, weakly governed firms appear to use derivatives mostly for managerial reasons. These results are robust to alternative measures of corporate governance, various subsamples, the use of foreign denominated debt as an alternative strategy to hedge currency exposure, and a potential selection bias. Overall, the results serve as the first comprehensive evidence of the impact of firm- and country-level corporate governance on firms’ use of derivatives.

Keywords: Risk management, hedging, corporate governance, derivatives, international

JEL Classification: F31, G30, G32

Suggested Citation

Lel, Ugur, Currency Hedging and Corporate Governance: A Cross-Country Analysis (November 17, 2009). FEDS Discussion Paper No. 858; Indiana University Working Paper. Available at SSRN: https://ssrn.com/abstract=391883 or http://dx.doi.org/10.2139/ssrn.391883

Ugur Lel (Contact Author)

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States

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