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Determinants of foreign exchange risk management in Latin American firms

Determinants of foreign exchange risk management in Latin American firms The purpose of this paper is to identify whether Latin American (LA) firms are adopting any hedging strategy when designing foreign exchange risk (FXR) measures. To that end, the authors explore the impact of several drivers of FXR management.Design/methodology/approachThe sample consists of 342 non-financial listed firms established in a group of representative countries of the LA region and covers the period from 2008 to 2016. Hypothesis testing is performed through a Logit model that measures the likelihood to adopt hedging practices. In addition, a Tobit test offers further insights into the derivatives users.FindingsThe authors corroborate capital structure-related hypotheses such as tax goals, financial distress, liquidity and growth opportunities. In addition, both ownership concentration and income tax payable seem to be negative and significant determinants of FXR coverage.Originality/valueResults reported in this study are relevant for the LA region with high tradition in raw materials and commodities exports. The results show that LA firms still make limited use of derivatives and there is still much room for improvement. Hence, additional efforts to promote FXR hedging should be desirable, to meet authorities’ recommendations (OECD et al., 2007). Further research exploring corporate governance relationships and differences between large and small firms might be helpful. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

Determinants of foreign exchange risk management in Latin American firms

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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1012-8255
DOI
10.1108/arla-03-2019-0072
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to identify whether Latin American (LA) firms are adopting any hedging strategy when designing foreign exchange risk (FXR) measures. To that end, the authors explore the impact of several drivers of FXR management.Design/methodology/approachThe sample consists of 342 non-financial listed firms established in a group of representative countries of the LA region and covers the period from 2008 to 2016. Hypothesis testing is performed through a Logit model that measures the likelihood to adopt hedging practices. In addition, a Tobit test offers further insights into the derivatives users.FindingsThe authors corroborate capital structure-related hypotheses such as tax goals, financial distress, liquidity and growth opportunities. In addition, both ownership concentration and income tax payable seem to be negative and significant determinants of FXR coverage.Originality/valueResults reported in this study are relevant for the LA region with high tradition in raw materials and commodities exports. The results show that LA firms still make limited use of derivatives and there is still much room for improvement. Hence, additional efforts to promote FXR hedging should be desirable, to meet authorities’ recommendations (OECD et al., 2007). Further research exploring corporate governance relationships and differences between large and small firms might be helpful.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: Nov 26, 2019

Keywords: Risk management; Foreign exchange risk; Hedging; Derivatives; Logit; Tobit; Latin America; GIKA-LATAM-2019; gestión del riesgo; riesgo de tipo de cambio; cobertura; derivados; Logit; Tobit; América Latina; GIKA-LATAM-2019; G32

References