IDEAS home Printed from https://ideas.repec.org/a/ajn/jobafd/2017p9-20.html
   My bibliography  Save this article

Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure

Author

Listed:
  • Numan Khan

    (National College of Business Administration and Economics (NCBA&E))

  • Khurshid Ali

    (Salford University Manchester, UK)

  • Alina Kiran

    (Lecturer at Bahria University Islamabad)

  • Riaqa Mubeen

    (Graduate from University of Agriculture, Faisalabad, Pakistan)

  • Zeeshan Khan

    (Pakistan Institute of Development Economics (PIDE))

  • Nasir Ali

    (COMSATS Institute of Information Technology, Islamabad)

Abstract

This study aims to investigate the factors that affect the derivatives usage of non-financial listed firms of Pakistan to hedge foreign exchange exposure by using data of 51 non-financial firms listed on Pakistan stock exchange from 2010-2013. The dependent variable was derivative usage which was used as dummy since no financial information was disclosed in company annual reports but the decision of usage or not. Non-parametric tests were uses which is univariate analysis to calculate the mean difference between users and non-users of derivative usage for hedging purposes. Further, logistic regression model was used to analyze the impact of financial distress costs, tax convexity, underinvestment problem, profitability, managerial holdings of the company and foreign sales on firm’s decision to whether they use FX derivatives for hedging purposes or not. The result shows that financially distressed firms, having lower managerial holdings and lower interest coverage ration with high foreign sales are using FX derivatives in Pakistan.

Suggested Citation

  • Numan Khan & Khurshid Ali & Alina Kiran & Riaqa Mubeen & Zeeshan Khan & Nasir Ali, 2017. "Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure," Journal of Banking and Financial Dynamics, Sophia, vol. 1(1), pages 9-20.
    • Handle: RePEc:ajn:jobafd:2017:p:9-20
    DOI: https://doi.org/10.20448/journal.525/2017.1.1/525.1.9.20
    as

    Download full text from publisher

    File URL: http://ecsenet.com/index.php/2576-6821/article/view/37
    Download Restriction: no
    File URL: http://ecsenet.com/index.php/2576-6821/article/view/37
    Download Restriction: no
    File URL: https://libkey.io/https://doi.org/10.20448/journal.525/2017.1.1/525.1.9.20?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Gerald D. Gay & Jouahn Nam, 1998. "The Underinvestment Problem and Corporate Derivatives Use," Financial Management, Financial Management Association, vol. 27(4), Winter.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Maheran Zakaria & Muhammad Saiful Anuar Yusoff & Zuraidah Sanusi, 2019. "Governance and Efficiency of Zakah Distributions Based on the Dire Necessities of Maqasid Al-Syariah," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(5), pages 191-203, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chang, Chia-Lin & Hsu, Hui-Kuang, 2013. "Modelling Volatility Size Effects for Firm Performance: The Impact of Chinese Tourists to Taiwan," MPRA Paper 45691, University Library of Munich, Germany.
    2. Niclas Hagelin & Bengt Pramborg, 2004. "Empirical evidence on the incentives to hedge transaction and translation exposure," Finance 0407020, University Library of Munich, Germany.
    3. Niclas Hagelin, 2003. "Why firms hedge with currency derivatives: an examination of transaction and translation exposure," Applied Financial Economics, Taylor & Francis Journals, vol. 13(1), pages 55-69.
    4. Smith, Stephen D. & Wall, Larry D., 2010. "Debt, hedging and human capital," Journal of Financial Stability, Elsevier, vol. 6(2), pages 55-63, June.
    5. Zhe Li & Oksana Pryshchepa & Bo Wang, 2023. "Financial experts on the top management team: Do they reduce investment inefficiency?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 50(1-2), pages 198-235, January.
    6. Charles Andoh & Susana Adobea Yamoah, 2021. "Reinsurance and Financial Performance of Non-life Insurance Companies in Ghana," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(2), pages 161-174, May.
    7. Deshmukh, Sanjay & Vogt, Stephen C., 2005. "Investment, cash flow, and corporate hedging," Journal of Corporate Finance, Elsevier, vol. 11(4), pages 628-644, September.
    8. Chang, Chia-Lin & Hsu, Hui-Kuang & McAleer, Michael, 2013. "Is small beautiful? Size effects of volatility spillovers for firm performance and exchange rates in tourism," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 519-534.
    9. Monda, Barbara & Giorgino, Marco & Modolin, Ileana, 2013. "Rationales for Corporate Risk Management - A Critical Literature Review," MPRA Paper 45420, University Library of Munich, Germany.
    10. Almeida, Heitor & Campello, Murillo & Weisbach, Michael S., 2011. "Corporate financial and investment policies when future financing is not frictionless," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 675-693, June.
    11. Shanker, Latha, 2000. "An innovative analysis of taxes and corporate hedging," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 237-255, December.
    12. Acharya, Viral V. & Almeida, Heitor & Campello, Murillo, 2007. "Is cash negative debt? A hedging perspective on corporate financial policies," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 515-554, October.
    13. Ibañéz, Francisco & Romero-Meza, Rafael & Coronado-Ramírez, Semei & Venegas-Martínez, Francisco, 2016. "Innovaciones financieras en América Latina:Mercado de Derivados y Determinates de la Administración de Riesgo," Panorama Económico, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 0(22), pages 7-38, Primer se.
    14. Fatemi, Ali & Luft, Carl, 2002. "Corporate risk management: Costs and benefits," Global Finance Journal, Elsevier, vol. 13(1), pages 29-38.
    15. Robert Hull, 2020. "Pass-Through and C Corp Outputs under TCJA," IJFS, MDPI, vol. 8(3), pages 1-32, August.
    16. Arnold, Matthias M. & Rathgeber, Andreas W. & Stöckl, Stefan, 2014. "Determinants of corporate hedging: A (statistical) meta-analysis," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(4), pages 443-458.
    17. Hagelin, Niclas & Pramborg, Bengt, 2006. "Empirical evidence concerning incentives to hedge transaction and translation exposures," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 142-159, April.
    18. Kevin Aretz & Söhnke M. Bartram, 2010. "Corporate Hedging And Shareholder Value," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 33(4), pages 317-371, December.
    19. repec:vuw:vuwscr:18974 is not listed on IDEAS
    20. Mohamed Mnasri & Georges Dionne & Jean-Pierre Gueyie, 2013. "The Maturity Structure of Corporate Hedging: the Case of the U.S. Oil and Gas Industry," Cahiers de recherche 1337, CIRPEE.
    21. Supanvanij, Janikan & Strauss, Jack, 2010. "Corporate derivative use and the composition of CEO compensation," Global Finance Journal, Elsevier, vol. 21(2), pages 170-185.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ajn:jobafd:2017:p:9-20. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sophia (email available below). General contact details of provider: http://www.onlinesciencepublishing.com/journal/22 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.