40 Pages Posted: 17 Mar 2008 Last revised: 30 Sep 2011
Date Written: September 30, 2011
This paper examines the impact of currency derivatives on firm value using a broad sample of firms from thirty-nine countries with significant exchange-rate exposure. Derivatives can be used for managers’ self-interest, for hedging or for speculative purposes. We hypothesize that investors can appeal to a firm’s internal (firm-level) and external (country-level) corporate governance to draw inferences on a firm’s motive behind the use of derivatives, since well-governed firms are more likely to use derivatives to hedge rather than to speculate or pursue managers’ self-interest. Consistent with this explanation, we find strong evidence that the use of currency derivatives for firms that have strong internal firm-level or external country-level governance is associated with a significant value premium.
Keywords: Risk Management, Hedging, Corporate Governance, Firm Value
JEL Classification: G32, G34, F3
Suggested Citation: Suggested Citation
Allayannis, George and Lel, Ugur and Miller, Darius P., The Use of Foreign Currancy Derivatives, Corporate Governance, and Firm Value Around the World (September 30, 2011). Darden Business School Working Paper No. 03-10. Available at SSRN: https://ssrn.com/abstract=460987 or http://dx.doi.org/10.2139/ssrn.460987