Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

Why hedge currency exposure with foreign currency debt?

Why hedge currency exposure with foreign currency debt? PurposeUsing hedging theories, we analyse the variables that determine the decision to hedge with foreign currency debt.Design/methodology/approachUsing a sample of 100 Spanish companies with a significant social and economic role in Latin American during 2004‐2007, we estimated probit models for panel data.FindingsOur results showed that the main determinants are scale economies and the use of derivatives. On the one hand, we found that this hedging is positively related to tax loss carry‐forwards and long‐term economic sectors, and on the other, that it is related negatively to information asymmetries and growth opportunities. Results were mixed for foreign currency exposure.Research limitations/implicationsThe limitations of this paper are associated to the availability of information from annual reports and the SABI database, especially the variables in relation to operational hedging. Therefore, as a future line of research, we propose gathering of data on these internal hedging practices in order to obtain more accurate evidence about its use in companies and their relationship with financial hedging.Originality/valueThis paper makes three major contributions to the existing literature. First, it contributes by illustrating currency hedging practices used by Spanish firms – which are important in Latin markets – to manage exchange rate exposure in. Second, we used more variables for the empirical analyses to contrast the hedging theories than previous studies had. Finally, we used a data panel because it allows the control of unobservable heterogeneity and endogeneity problems. Previous studies only used cross‐section estimations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Academia Revista Latinoamericana de Administración Emerald Publishing

Loading next page...
 
/lp/emerald-publishing/why-hedge-currency-exposure-with-foreign-currency-debt-pVBOvhvF0a

References (63)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1012-8255
DOI
10.1108/ARLA-06-2013-0068
Publisher site
See Article on Publisher Site

Abstract

PurposeUsing hedging theories, we analyse the variables that determine the decision to hedge with foreign currency debt.Design/methodology/approachUsing a sample of 100 Spanish companies with a significant social and economic role in Latin American during 2004‐2007, we estimated probit models for panel data.FindingsOur results showed that the main determinants are scale economies and the use of derivatives. On the one hand, we found that this hedging is positively related to tax loss carry‐forwards and long‐term economic sectors, and on the other, that it is related negatively to information asymmetries and growth opportunities. Results were mixed for foreign currency exposure.Research limitations/implicationsThe limitations of this paper are associated to the availability of information from annual reports and the SABI database, especially the variables in relation to operational hedging. Therefore, as a future line of research, we propose gathering of data on these internal hedging practices in order to obtain more accurate evidence about its use in companies and their relationship with financial hedging.Originality/valueThis paper makes three major contributions to the existing literature. First, it contributes by illustrating currency hedging practices used by Spanish firms – which are important in Latin markets – to manage exchange rate exposure in. Second, we used more variables for the empirical analyses to contrast the hedging theories than previous studies had. Finally, we used a data panel because it allows the control of unobservable heterogeneity and endogeneity problems. Previous studies only used cross‐section estimations.

Journal

Academia Revista Latinoamericana de AdministraciónEmerald Publishing

Published: Aug 23, 2013

There are no references for this article.