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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.

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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  • Allayannis, George & Lel, Ugur & Miller, Darius P., 2012. "The use of foreign currency derivatives, corporate governance, and firm value around the world," Journal of International Economics, Elsevier, vol. 87(1), pages 65-79.
  • Handle: RePEc:eee:inecon:v:87:y:2012:i:1:p:65-79
    DOI: 10.1016/j.jinteco.2011.12.003
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    Cited by:

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    2. Kim, Huong Trang & Papanastassiou, Marina & Nguyen, Quang, 2017. "Multinationals and the impact of corruption on financial derivatives use and firm value: Evidence from East Asia," Journal of Multinational Financial Management, Elsevier, vol. 39(C), pages 39-59.
    3. repec:wsi:rpbfmp:v:20:y:2017:i:04:n:s0219091517500278 is not listed on IDEAS
    4. Lau, Chee Kwong, 2016. "How corporate derivatives use impact firm performance?," Pacific-Basin Finance Journal, Elsevier, vol. 40(PA), pages 102-114.
    5. Mikael C. Bergbrant & Kaysia Campbell & Delroy M. Hunter, 2014. "Firm-Level Competition and Exchange Rate Exposure: Evidence from a Global Survey of Firms," Financial Management, Financial Management Association International, vol. 43(4), pages 885-916, December.
    6. Olga Kuzmina & Olga Kuznetsova, 2017. "Operational and Financial Hedging: Evidence from Export and Import Behavior," Working Papers w0242, Center for Economic and Financial Research (CEFIR).
    7. repec:eee:corfin:v:48:y:2018:i:c:p:109-121 is not listed on IDEAS
    8. Tadashi Ito & Toshihiro Okubo, 2016. "The Impact of the Euro on the Quality of Trade: Evidence from the European Union," Manchester School, University of Manchester, vol. 84(4), pages 506-527, July.
    9. Diogo Batista da SIlva & António Cerqueira & Elísio Brandão, 2017. "Earnings Management Dynamics in Portuguese Listed Firms," FEP Working Papers 587, Universidade do Porto, Faculdade de Economia do Porto.
    10. repec:eee:quaeco:v:65:y:2017:i:c:p:128-136 is not listed on IDEAS
    11. Hege, Ulrich & Hutson, Elaine & Laing, Elaine, 2018. "The impact of mandatory governance changes on financial risk management," TSE Working Papers 18-889, Toulouse School of Economics (TSE).
    12. Chen, Jun & King, Tao-Hsien Dolly, 2014. "Corporate hedging and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 221-245.
    13. Cigdem Vural-Yavas, 2016. "Determinants of Corporate Hedging: Evidence from Emerging Market," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 151-162, December.

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