Foreign debt as a hedging instrument of exchange rate risk: a new perspective
This paper analyzes the factors that determine the use of foreign currency debt to hedge currency exposure for a sample of 96 Spanish non-financial companies listed in 2004. Unlike previous empirical studies, which have attempted to explain the use of foreign currency debt using arguments stemming exclusively from hedging theory, we have complemented the analysis with hypotheses from capital structure theory. In particular, we analyze the variables that determine the decision to hedge with foreign currency debt and hedging volume. On the one hand, we found that the decision to hedge with foreign debt is positively related to the level of foreign currency exposure, size, tax loss carry-forwards, managerial risk aversion and the building, R&D and other services sector; and on the other hand, the extent of hedging is related positively to the foreign currency exposure, size, managerial risk aversion and negatively to the costs of financial distress. We also analyze the interaction between foreign currency debt and derivatives in the hedging decision. Moreover, after controlling for the existence and type of currency swaps, we found that this consideration did not have an effect on the determinants of hedging with foreign currency debt.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 16 (2010)
Issue (Month): 7 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/REJF20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/REJF20|
When requesting a correction, please mention this item's handle: RePEc:taf:eurjfi:v:16:y:2010:i:7:p:677-710. 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: (Michael McNulty)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.