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Currency hedging and corporate governance: A cross-country analysis

  • Lel, Ugur
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This paper examines the impact of the strength of governance on firms' use of currency derivatives. Using a sample of firms from 30 countries over the period 1990 to 1999, we find that strongly governed firms tend to use derivatives to hedge currency exposure and overcome costly external financing. On the other hand, weakly governed firms appear to use derivatives mostly for managerial reasons. These results are robust to alternative measures of corporate governance, various subsamples, the use of foreign denominated debt as an alternative strategy to hedge currency exposure, and a potential selection bias. Overall, the results serve as the first comprehensive evidence of the impact of firm- and country-level corporate governance on firms' use of derivatives.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 18 (2012)
Issue (Month): 2 ()
Pages: 221-237

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Handle: RePEc:eee:corfin:v:18:y:2012:i:2:p:221-237
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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