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Corporate foreign exchange speculation and integrated risk management

Author

Listed:
  • Tom Aabo
  • Marianna Andryeyeva Hansen
  • Christos Pantzalis

Abstract

Purpose - The purpose of this paper is to investigate how non-finance departmental involvement in the management of exchange rate risks impacts the extent of foreign exchange speculation in non-financial firms. Design/methodology/approach - Non-financial firms in a small open economy (Denmark) are surveyed to investigate the extent of foreign exchange speculation and how it is related to the degree of nonfinance departmental involvement in the management of exchange rate risks. The authors employ binary and ordered probit regression analysis. Findings - A positive link is found between the extent to which departments other than the finance department are involved in the management of exchange rate risks; and second, the extent to which the firm is likely to speculate – whether in the form of selective hedging or active speculation – on the foreign exchange market. Practical implications - The findings indicate that the trend towards a more integrated risk management approach in which the finance department is not the only department responsible for risk management may have the (unforeseen) consequence that foreign exchange speculation increases. Originality/value - The paper's findings are important because the link between the extent of foreign exchange speculation and a more integrated risk management approach has not been addressed previously.

Suggested Citation

  • Tom Aabo & Marianna Andryeyeva Hansen & Christos Pantzalis, 2012. "Corporate foreign exchange speculation and integrated risk management," Managerial Finance, Emerald Group Publishing, vol. 38(8), pages 729-751, June.
  • Handle: RePEc:eme:mfipps:v:38:y:2012:i:8:p:729-751
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    References listed on IDEAS

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    Cited by:

    1. Roberto Alvarez & Erwin Hansen, 2017. "Corporate Currency Risk and Hedging in Chile: Real and Financial Effects," IDB Publications (Working Papers) 97976, Inter-American Development Bank.
    2. Zeidan, Rodrigo & Müllner, Jakob, 2015. "Firm, market and top management antecedents of speculation: Lessons for corporate governance," Journal of Multinational Financial Management, Elsevier, vol. 32, pages 42-58.
    3. Luiz Rossi, José, 2013. "Hedging, selective hedging, or speculation? Evidence of the use of derivatives by Brazilian firms during the financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 415-433.
    4. Chansog Kim & Christos Pantzalis & Jung Chul Park, 2014. "Do Family Owners Use Firm Hedging Policy to Hedge Personal Undiversified Wealth Risk?," Financial Management, Financial Management Association International, vol. 43(2), pages 415-444, June.

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