Asymmetric Information and Corporate Risk Management by Using Foreign Currency Derivatives

Bingxuan Lin and Chen-Miao Lin ()
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Bingxuan Lin: College of Business Administration, University of Rhode Island, Kingston, Rhode Island 02881, USA
Chen-Miao Lin: Department of Accounting, Economics and Finance, College of Business, Clayton State University, Morrow, GA 30260, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2012, vol. 15, issue 01, 1-19

Abstract: We examine how information asymmetry affects a firm's incentive to hedge versus speculate by using foreign currency derivatives. We find a quadratic relation between asymmetric information and a firm's risk management activities. In particular, we find that the firms facing medium level of information asymmetry are more likely to hedge, while firms with very high and low levels of asymmetric information tend to speculate. Moreover, we find that our results hold primary for firms operating in highly competitive industries.

Keywords: Hedging; speculation; derivatives; asymmetric information; competition (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (6)

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DOI: 10.1142/S0219091511500068

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