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Asymmetric Information and Corporate Risk Management by Using Foreign Currency Derivatives

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  • Bingxuan Lin

    (College of Business Administration, University of Rhode Island, Kingston, Rhode Island 02881, USA)

  • Chen-Miao Lin

    () (Department of Accounting, Economics and Finance, College of Business, Clayton State University, Morrow, GA 30260, USA)

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    Abstract

    We examine how information asymmetry affects a firm's incentive to hedge versus speculate by using foreign currency derivatives. We find a quadratic relation between asymmetric information and a firm's risk management activities. In particular, we find that the firms facing medium level of information asymmetry are more likely to hedge, while firms with very high and low levels of asymmetric information tend to speculate. Moreover, we find that our results hold primary for firms operating in highly competitive industries.

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    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Review of Pacific Basin Financial Markets and Policies.

    Volume (Year): 15 (2012)
    Issue (Month): 01 ()
    Pages: 1250004-1-1250004-19

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    Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:01:p:1250004-1-1250004-19

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    Related research

    Keywords: Hedging; speculation; derivatives; asymmetric information; competition;

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