The use of Fx derivatives and the cost of capital: Evidence of Brazilian companies

João Ricardo Ribeiro Coutinho, Hsia Hua Sheng and Mayra Ivanoff Lora

Emerging Markets Review, 2012, vol. 13, issue 4, 411-423

Abstract: 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.

Keywords: Derivatives; Cost of capital; WACC; Risk capital; Hedge; Risk management; Non-financial companies (or non-financials in market jargon) (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:13:y:2012:i:4:p:411-423

DOI: 10.1016/j.ememar.2012.07.001

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