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Currency derivatives for hedging: New evidence on determinants, firm risk, and performance
Author(s) -
Bae Sung C.,
Kim Hyeon Sook,
Kwon Taek Ho
Publication year - 2018
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21894
Subject(s) - foreign exchange risk , currency , monetary economics , business , debt , hedge , financial economics , economics , finance , ecology , biology
Employing firm‐level data for Korean firms, we find that firms with more export, more foreign currency debt, and higher exchange rate exposures are likely to use more currency derivatives for hedging. 2SLS regressions reveal that as more currency derivatives use does not lead to lower firm risk, such transactions, especially sell transactions, bring in higher firm values. Further, currency derivatives use by firms with high exposures is associated with lower firm risk but lower firm values as well. These findings suggest that currency derivatives work in hedging risk and protecting values for firms with low and manageable exposures.