Currency derivatives for hedging: New evidence on determinants, firm risk, and performance

Bae, Sung C.; Kim, Hyeon Sook; Kwon, Taek Ho

doi:10.1002/fut.21894

Cited by 49 publications

(56 citation statements)

References 56 publications

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“…With reference to the fourth and last hypothesis, Smith and Stulz (1985) show that bankruptcy costs is a further source of incentive for the use of derivatives. The same conclusions are received from these studies Tuckman (2016), Xiao (2017), Bae et al (2017) and Carroll et al (2017). In fact, by reducing the fluctuations in corporate flows, hedging through derivatives makes it possible to reduce the likelihood of a financial crisis, which can lead to extremely critical situations such as bankruptcy, liquidation or, at the very least, corporate restructuring and the need to bear direct costs (legal costs, administrative costs and the lesser value attributed to assets at the time of liquidation) and indirect (loss of image and consequent reduction in contractual power) of a very high amount.…”

Section: Regardless Of the Country Of Origin Of The Firm Invisible Isupporting

confidence: 61%

Expected cost of financial distress in small and medium-sized enterprises (SMEs): A German-Italian comparison

Quintiliani¹

2018

Afr. J. Bus. Manage.

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This study aims to identify a number of qualitative and quantitative elements that affect financial distress costs between Italian and German small and medium-sized enterprises (SMEs). We propose a model that interprets "expected costs" as the product between "expected financial distress likelihood" and "total amount of financial distress costs due to insolvency". The model is estimated using panel data methodology on samples from two European countries (Italy and Germany). The results indicate that expected costs depend on the use of derivative financial instruments, use of intangible assets and the relation with local banks (small local banks rather than large banking groups); in particular, the results obtained from crosscountry comparison shows that German SMEs (or Mittelstand companies) have characteristics that limit financial distress costs. It should be emphasized that the present work limits its field of investigation to a few variables without fully addressing other elements of uncertainty which may adversely affect the expected cost of financial distress in SMEs. This work will be useful to stimulate debate on policies to support SMEs. The originality of this study is to focus on determinants of financial distress in SMEs using panel data methodology.

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Section: Regardless Of the Country Of Origin Of The Firm Invisible Isupporting

confidence: 61%

Expected cost of financial distress in small and medium-sized enterprises (SMEs): A German-Italian comparison

Quintiliani¹

2018

Afr. J. Bus. Manage.

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“…The financial performance is a critical indicator that a business is working well, and different proxies are used by various researchers for financial performance (Bae, Kim, & Kwon, 2018). The selection of unbiased indicators to measure financial performance is significant.…”

Section: Financial Performancementioning

confidence: 99%

Impact of Corporate Governance on American Corporates' Financial Performance: The Mediating Role of Derivatives

Bahoo

Ahmed²,

Shoukat

et al. 2019

JISR-MSSE

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This study aims to present and test a model that derivatives (commodity, currency, and interest rate) play a mediating role between corporate governance and financial performance. We tested this model through a sample of 85 non-financial American corporates listed in New York Stock Exchange, U.S. 100 Index for six years from 2009-2014 by applying Partial Least Square, Structural Equation Modeling. We confirm that derivatives usage plays a mediating role between corporate governance and financial performance. We found and recommend that the utilization of derivatives as a risk management tool is essential for corporates to improve financial performance. Finally, the findings are useful for corporates from developed (European), emerging (China), and developing (Pakistan, Bangladesh) countries to utilize derivatives to hedge risk and improve financial performance.

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“…The degree of exposure may explain those asymmetries. For example, Bae, Kim, and Kwon (2018) explain that highly exposed firms show lower firm risk but also lower firm values.…”

Section: Foreign Exchange Derivatives As Moderators Of Foreign Exchanmentioning

confidence: 99%

Impact of Exchange Rate Derivatives on Stocks in Emerging Markets

Ponce

Castillo-Ramírez

Venegas-Martı́nez

2020

Journal of Business Economics and Management

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This paper investigates the effect of derivatives on the relationship between the foreign exchange rate and the stock market. A theoretical model is used to extend the understanding of that relationship. Also, the model is tested with an empirical analysis using the GMM strategy for the Mexican and Brazilian stock markets for the period 2007 to 2019. Findings reveal that in addition to the spot exchange rate, exchange rate futures explain the currency exposure, wherein the derivative effect is the most prominent. The result implies that both risk sources should be considered in the implementation of risk management or macroeconomic policy. The theoretical results are extended by applying them to international portfolio management, proposing a strategy to mitigate foreign exchange exposure with derivatives. This study contributes to the literature by explaining why the minimum variance hedge ratio plays an essential role in the foreign exchange rate and stock market nexus.

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Currency derivatives for hedging: New evidence on determinants, firm risk, and performance

Cited by 49 publications

References 56 publications

Expected cost of financial distress in small and medium-sized enterprises (SMEs): A German-Italian comparison

Expected cost of financial distress in small and medium-sized enterprises (SMEs): A German-Italian comparison

Impact of Corporate Governance on American Corporates' Financial Performance: The Mediating Role of Derivatives

Impact of Exchange Rate Derivatives on Stocks in Emerging Markets

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