The use of Fx derivatives and the cost of capital: Evidence of Brazilian companies
Large corporations have been using derivative instruments as a tool to protect their indirect exposure, as FX risks. A sample with 47 non-financial Bovespa Listed Brazilian companies from 2004 and 2010 was used to test the hypothesis that use of derivatives as a risk management policy tool reduces companies' cost of capital. In contrast to other countries, results rejected this hypothesis, showing that in Brazil there is a positive relationship between using these tools and cost of capital. However, a more in-depth analysis based on the TACC model for a Brazilian company, this hypothesis was not rejected after the 2008 crisis.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Neil A. Doherty, 2005. "Risk Management, Risk Capital, and the Cost of Capital," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(3), pages 119-123.
- Prakash Shimpi, 2002. "Integrating Risk Management And Capital Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(4), pages 27-40.
- José Luiz Rossi Júnior, 2008.
"Corporate Financial Policies and the Exchange Rate Regime: Evidence from Brazil,"
Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting]
200807210957020, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
- Rossi Jr, José Luiz, 2009. "Corporate financial policies and the exchange rate regime: Evidence from Brazil," Emerging Markets Review, Elsevier, vol. 10(4), pages 279-295, December.
- Pogue, Thomas F. & Soldofsky, Robert M., 1969. "What's in a Bond Rating," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 4(02), pages 201-228, June.
- Uluc Aysun & Melanie Guldi, 2009.
"Exchange rate exposure: A nonparametric approach,"
2009-18, University of Connecticut, Department of Economics.
- Mishra, Dev R. & O'Brien, Thomas J., 2005. "Risk and ex ante cost of equity estimates of emerging market firms," Emerging Markets Review, Elsevier, vol. 6(2), pages 107-120, June.
- Scholes, Myron & Williams, Joseph, 1977. "Estimating betas from nonsynchronous data," Journal of Financial Economics, Elsevier, vol. 5(3), pages 309-327, December.
- Tufano, Peter, 1996. " Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
- Robert C. Merton & André Perold, 1993. "Theory Of Risk Capital In Financial Firms," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(3), pages 16-32.
- Kim, Woochan & Sung, Taeyoon, 2005. "What makes firms manage FX risk?," Emerging Markets Review, Elsevier, vol. 6(3), pages 263-288, September.
- René M. Stulz, 1996. "Rethinking Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(3), pages 8-25.
- MInardi, Andrea Maria Accioly Fonseca & Sanvicente, Antônio Zoratto & Artes, Rinaldo & Pereira, Attilio P. P. & Zausner, Fábio W., 2007. "Estimação do custo de capital de terceiros a valor de mercado para companhias fechadas no Brasil visando uma melhor gestão estratégica de projetos," Insper Working Papers wpe_85, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Bhagwan Chowdhry, 1995. "Corporate Hedging of Exchange Risk When Foreign Currency Cash Flow Is Uncertain," Management Science, INFORMS, vol. 41(6), pages 1083-1090, June.
- William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, 09.
When requesting a correction, please mention this item's handle: RePEc:eee:ememar:v:13:y:2012:i:4:p:411-423. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.