Enterprise risk management and foreign currency derivatives usage

Xu Han and Elaine Laing

International Review of Economics & Finance, 2025, vol. 103, issue C

Abstract: We examine the impact of enterprise risk management (ERM) adoption and its components of non-financial U.S. companies on foreign exchange rate (FX, hereafter) hedging. We find that firms with more advanced ERM implementation are more likely to adopt currency derivatives to hedge due to the enhanced enterprise-wide risk culture brought by ERM, which holistically incorporates risk management activities into corporate strategic objectives with reduced risk-taking behaviors. Multiple endogeneity tests verify the validity of the results. Moreover, we find evidence that ERM plays a limited role in low-multinational firms and increases the usage of currency derivatives in highly multinational and global firms. ERM firms with female or long-tenured CEOs or CEOs serving as board chairs and obtaining finance-related education tend to employ higher levels of currency hedging.

Keywords: Enterprise risk management; Foreign exchange derivatives; Multinationality; Financial hedging (search for similar items in EconPapers)
JEL-codes: D81 F23 F31 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:103:y:2025:i:c:s1059056025006811

DOI: 10.1016/j.iref.2025.104518

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