Factors Affecting Firm s Foreign Exchange Risk Hedging...

Factors Affecting Firm’s Foreign Exchange Risk Hedging Policy Abstract Mostly foreign currency derivatives are used for hedging foreign exchange rate risk caused by exchange rate adverse fluctuation. This study is aimed to determine different factors that affect the foreign currency derivatives usage. Secondary data of 112 non financial firms, taken from their annual reports and balance sheet analysis issued by State Bank of Pakistan, is used for analysis for the period 2008 to 2013. Mann Whitney U test was used to check differences in characteristics of foreign currency derivatives users and non-users. Results show that users of the foreign currency were categorized as to be those firms having higher liquidity, lower growth options, larger in size, lower leverage, higher managerial ownership, lower profitability and higher foreign exposure as compared to the non users of foreign currency derivatives. Logit regression model was used to investigate different factors affecting firm’s derivatives usage for hedging its foreign exchange risk. Results of the logit model illustrate that there is significantly positive relationship between firm size, liquidity, foreign exposure and managerial ownership. The results also show that corporations with higher liquidity, larger size, and larger managerial ownership are more likely to use foreign currency derivatives usage for hedging. Further results illustrate negative significant relationship between growth opportunities, leverageShow MoreRelatedForeign Exchange Exposure And Toyota2063 Words   |  9 PagesGERALD FERNANDO LAUAN 2013059085 VICTORIA 2013059087 Foreign Exchange Exposure and Toyota Globalization has allowed the integration of national economies into the international market, giving easier access to information, goods and services through trade around the world. 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