Determinants of foreign exchange risk management in Latin American firms

Abstract

Purpose 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/approach The 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. Findings The 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/value Results 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.

International trade and innovation: delving in Latin American commerce

“…Given the differentiation, the company has some scope to set prices without fear of competition, resembling monopolistic competition. The firm's motivation to open to trade would be given by the possibility of supplying a wider market and reducing its average costs; Additionally, domestic consumers can opt for a greater variety of goods when acquiring foreign production (Vivel-B ua et al, 2013;Giraldo-Prieto et al, 2019). It also presents a model that includes transportation costs, explaining what is known as the "internal market effect" if trade is expensive, exposing the existence of non-tradable goods.…”

Hedging Decision: Growth Opportunity, Firm Size, and Dividend Policy (Study of BUMN Companies Listed on Indonesia Stock Exchange 2011-2020)

“…To minimize the risk of asset losses and liabilities arising from fluctuations in the rupiah exchange rate, companies can implement a hedging policy. Using hedging can improve the capital market, trade between countries, and control of company assets (Giraldo-Prieto et al, 2019). Based on the regulation of the Minister of Finance of the Republic of Indonesia Number 12 / PMK.08 / 2013, hedging is a way to mitigate business risks that arise against interest rates or uncertain currencies in the financial markets.…”