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The use of foreign currency derivatives, corporate governance, and firm value around the world

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  • Allayannis, George
  • Lel, Ugur
  • Miller, Darius P.
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Abstract

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.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 87 (2012)
Issue (Month): 1 ()
Pages: 65-79

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Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:65-79

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Currency derivatives use; Hedging; Corporate governance;

References

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