Exchange Rate Risk Management : Evidence from East Asia
The recent East Asian financial crisis provides a natural experiment for investigating foreign exchange risk management by nonfinancial corporations. During this period, the financial crisis exposed local firms to large depreciations in exchange ra...
| Main Authors: | , , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/05/1121294/exchange-rate-risk-management-evidence-east-asia http://hdl.handle.net/10986/19655 |
| id |
okr-10986-19655 |
|---|---|
| recordtype |
oai_dc |
| spelling |
okr-10986-196552021-04-23T14:03:43Z Exchange Rate Risk Management : Evidence from East Asia Allayannis, George Brown, Gregory W. Klapper, Leora BALANCE SHEET BANK OF THAILAND BONDS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CENTRAL BANKS COAL CONVERTIBLE DEBENTURES CORPORATE DEBT CORPORATE FINANCE CORPORATE MANAGERS CREDIT RISK CREDITOR CURRENCY RISK CURRENT RATIO DEBT DEBT CAPACITY DEBT ISSUANCE DEBT LEVEL DEBT MARKETS DEBT TO EQUITY RATIO DEVALUATION ECONOMICS EMPIRICAL RESEARCH EQUILIBRIUM EQUITY MARKETS EXCHANGE RATE EXCHANGE RATES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL RISK FISCAL YEAR FOREIGN BORROWING FOREIGN DEBT FOREIGN EXCHANGE FOREIGN EXCHANGE EXPOSURE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RISK MANAGEMENT GDP GDP PER CAPITA GROSS MARGIN GROWTH POTENTIAL ILLIQUIDITY IMPORTS INCOME INTEREST COSTS INTEREST COVERAGE RATIO INTEREST RATE INTEREST RATES MACROECONOMIC CONDITIONS MARKET LIQUIDITY MARKET VALUE MIDDLE INCOME COUNTRIES OFFERINGS PROFIT MARGIN PROFITABILITY QUICK RATIO RISK FACTORS RISK MANAGEMENT STOCK MARKETS TECHNICAL ASSISTANCE TRANSACTION COSTS The recent East Asian financial crisis provides a natural experiment for investigating foreign exchange risk management by nonfinancial corporations. During this period, the financial crisis exposed local firms to large depreciations in exchange rates and reduced access to foreign capital. The authors explore the exchange rate hedging practices of firms that hedged exposure to foreign debt in eight East Asian countries between 1996 and 1998. They identify and characterize East Asian companies that used foreign currency derivatives, documenting differences in size, financial characteristics, and exposure to domestic and foreign debt. They investigate the factors improtant in the use of foreign currency derivatives. Unlike studies of US firms, they find limited support for existing theories of optimal hedging. Instead, they find that firms use foreign earnings as a substitute for hedging with derivatives. And they find evidence that firms engage in "selective" hedging. They investigate the relative performance of hedgers during and after the crisis. They find no evidence that East Asian firms eliminated their foreign exchange exposure by using derivatives. Firms that used derivatives before the crisis performed just as poorly as nonhedgers during the crisis. After the crisis, firms that hedged performed somewhat better than nonhedgers, but this result appears to be explained by a larger post-crisis currency exposure for hedgers (an exchange rate risk premium), which had limited access to derivatives during this period. 2014-08-26T14:31:26Z 2014-08-26T14:31:26Z 2001-05 http://documents.worldbank.org/curated/en/2001/05/1121294/exchange-rate-risk-management-evidence-east-asia http://hdl.handle.net/10986/19655 English en_US Policy Research Working Paper;No. 2606 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
BALANCE SHEET BANK OF THAILAND BONDS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CENTRAL BANKS COAL CONVERTIBLE DEBENTURES CORPORATE DEBT CORPORATE FINANCE CORPORATE MANAGERS CREDIT RISK CREDITOR CURRENCY RISK CURRENT RATIO DEBT DEBT CAPACITY DEBT ISSUANCE DEBT LEVEL DEBT MARKETS DEBT TO EQUITY RATIO DEVALUATION ECONOMICS EMPIRICAL RESEARCH EQUILIBRIUM EQUITY MARKETS EXCHANGE RATE EXCHANGE RATES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL RISK FISCAL YEAR FOREIGN BORROWING FOREIGN DEBT FOREIGN EXCHANGE FOREIGN EXCHANGE EXPOSURE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RISK MANAGEMENT GDP GDP PER CAPITA GROSS MARGIN GROWTH POTENTIAL ILLIQUIDITY IMPORTS INCOME INTEREST COSTS INTEREST COVERAGE RATIO INTEREST RATE INTEREST RATES MACROECONOMIC CONDITIONS MARKET LIQUIDITY MARKET VALUE MIDDLE INCOME COUNTRIES OFFERINGS PROFIT MARGIN PROFITABILITY QUICK RATIO RISK FACTORS RISK MANAGEMENT STOCK MARKETS TECHNICAL ASSISTANCE TRANSACTION COSTS |
| spellingShingle |
BALANCE SHEET BANK OF THAILAND BONDS BORROWING CAPITAL EXPENDITURES CAPITAL MARKETS CENTRAL BANKS COAL CONVERTIBLE DEBENTURES CORPORATE DEBT CORPORATE FINANCE CORPORATE MANAGERS CREDIT RISK CREDITOR CURRENCY RISK CURRENT RATIO DEBT DEBT CAPACITY DEBT ISSUANCE DEBT LEVEL DEBT MARKETS DEBT TO EQUITY RATIO DEVALUATION ECONOMICS EMPIRICAL RESEARCH EQUILIBRIUM EQUITY MARKETS EXCHANGE RATE EXCHANGE RATES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL LEVERAGE FINANCIAL MARKETS FINANCIAL PERFORMANCE FINANCIAL RISK FISCAL YEAR FOREIGN BORROWING FOREIGN DEBT FOREIGN EXCHANGE FOREIGN EXCHANGE EXPOSURE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RISK MANAGEMENT GDP GDP PER CAPITA GROSS MARGIN GROWTH POTENTIAL ILLIQUIDITY IMPORTS INCOME INTEREST COSTS INTEREST COVERAGE RATIO INTEREST RATE INTEREST RATES MACROECONOMIC CONDITIONS MARKET LIQUIDITY MARKET VALUE MIDDLE INCOME COUNTRIES OFFERINGS PROFIT MARGIN PROFITABILITY QUICK RATIO RISK FACTORS RISK MANAGEMENT STOCK MARKETS TECHNICAL ASSISTANCE TRANSACTION COSTS Allayannis, George Brown, Gregory W. Klapper, Leora Exchange Rate Risk Management : Evidence from East Asia |
| geographic_facet |
East Asia and Pacific |
| relation |
Policy Research Working Paper;No. 2606 |
| description |
The recent East Asian financial crisis
provides a natural experiment for investigating foreign
exchange risk management by nonfinancial corporations.
During this period, the financial crisis exposed local firms
to large depreciations in exchange rates and reduced access
to foreign capital. The authors explore the exchange rate
hedging practices of firms that hedged exposure to foreign
debt in eight East Asian countries between 1996 and 1998.
They identify and characterize East Asian companies that
used foreign currency derivatives, documenting differences
in size, financial characteristics, and exposure to domestic
and foreign debt. They investigate the factors improtant in
the use of foreign currency derivatives. Unlike studies of
US firms, they find limited support for existing theories of
optimal hedging. Instead, they find that firms use foreign
earnings as a substitute for hedging with derivatives. And
they find evidence that firms engage in
"selective" hedging. They investigate the relative
performance of hedgers during and after the crisis. They
find no evidence that East Asian firms eliminated their
foreign exchange exposure by using derivatives. Firms that
used derivatives before the crisis performed just as poorly
as nonhedgers during the crisis. After the crisis, firms
that hedged performed somewhat better than nonhedgers, but
this result appears to be explained by a larger post-crisis
currency exposure for hedgers (an exchange rate risk
premium), which had limited access to derivatives during
this period. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Allayannis, George Brown, Gregory W. Klapper, Leora |
| author_facet |
Allayannis, George Brown, Gregory W. Klapper, Leora |
| author_sort |
Allayannis, George |
| title |
Exchange Rate Risk Management : Evidence from East Asia |
| title_short |
Exchange Rate Risk Management : Evidence from East Asia |
| title_full |
Exchange Rate Risk Management : Evidence from East Asia |
| title_fullStr |
Exchange Rate Risk Management : Evidence from East Asia |
| title_full_unstemmed |
Exchange Rate Risk Management : Evidence from East Asia |
| title_sort |
exchange rate risk management : evidence from east asia |
| publisher |
World Bank, Washington, DC |
| publishDate |
2014 |
| url |
http://documents.worldbank.org/curated/en/2001/05/1121294/exchange-rate-risk-management-evidence-east-asia http://hdl.handle.net/10986/19655 |
| _version_ |
1764440182835118080 |