The use of foreign currency derivatives, corporate governance, and firm value around the world

George Allayannis, Ugur Lel and Darius P. Miller

Journal of International Economics, 2012, vol. 87, issue 1, 65-79

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.

Keywords: Currency derivatives use; Hedging; Corporate governance (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (70)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:87:y:2012:i:1:p:65-79

DOI: 10.1016/j.jinteco.2011.12.003

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