Who Times the Foreign Exchange Market? Corporate Speculation and CEO Characteristics

Abstract

This paper shows that managers' personal beliefs and individual characteristics explain a large share of the substantial time-variation of derivatives use beyond firm, industry, and market fundamentals. We construct a panel data set of foreign currency derivatives holdings and currency exposures for U.S. non-financial firms. We use a novel approach to build a firm-specific foreign exchange return. We find that managers adjust derivatives notional amounts in response to past foreign exchange returns, as if they were forming views on future currency prices. We then construct an empirical measure of speculative behavior for each firm to investigate the profile of the speculator. Firms where the CEO holds an MBA degree, is younger, and has less previous working experience speculate more. These results are consistent with overconfident managers taking more risk.

Combined use of foreign debt and currency derivatives under the threat of currency crises: The case of Latin American firms

“…A speculative motivation arises, however, in the comparative survey by Bodnar and Gebhardt (1998), where a significant percentage of firms admit to enter in derivatives positions as a result of their market view. Beber and Fabbri (2006) confirm that U.S. firms adopt an active "market view" attitude. They also link corporate derivatives' use to different managerial characteristics.…”

Effects of Foreign-Currency Debt on Non-Financial Latin American Firms: Evidence from the 2000s

“…More precisely, this equation is based on papers analyzing the use of derivatives in hedging both currency-and interest-rate-risks. 28 In particular, this paper borrows most of the control variables from Beber and Fabbri (2012). 29 Indeed, these controls include export-to-sales ratio, log of sales (as a size proxy), growth of sales and the lagged ratio of liquid assets over total assets.…”

Relevância das características dos CEO’s na estrutura de capital de empresas listadas no IBrX-100 da BM&FBOVESPA

“…Assim, a relevância de incluir esses fatores reside no pressuposto de que os CEO's são diferentes entre si e possuem qualidades, expertises e características divergentes que podem impactar, de acordo com o seu estilo de gestão, na forma como a empresa compõe o mix de recursos próprios e de terceiros, seja de maneira mais agressiva ou mais conservadora (BERTRAND; SCHOAR, 2003;FRANK;GOYAL, 2007;MALMENDIER;TATE, 2005;BEBER;FABBRI, 2012;CRONQVIST;MAKHIJA;YONKER, 2012;YIM, 2013).…”

“…Essa pressuposição baseia-se na visão tradicional das Finanças Corporativas de que a estrutura de capital gera valor para a empresa ao longo do tempo (DURAND, 1952). Desse modo, pretende-se contribuir com a literatura teórica e empírica sobre estrutura de capital no Brasil ao incluir o estilo de gestão dos CEO's como determinante relevante para a composição do endividamento, conforme sugerem alguns trabalhos internacionais (BERTRAND; SCHOAR, 2003;FRANK;GOYAL, 2007;MALMENDIER;TATE, 2005;BEBER;FABBRI, 2012;CRONQVIST;MAKHIJA;YONKER, 2012;YIM, 2013;CUSTÓDIO;METZGER, 2014) e nacionais (BARROS; SILVEIRA, 2008).…”