Financial regulation, exchange rate exposure, and hedging activities

Evidence from Korean firms

Jong Hee Kim, Joocheol Kim

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

In this article, we attempt to estimate whether firm-specific exchange rate exposures affected by hedging activities can be improved through financial regulation or supervision. To analyze this, we compose three-step estimations by using a sample of KOSPI 200 firms during 1,803 trading days between 2005 and 2012. We first estimate the relationship between exchange rate exposure and hedging activities and see whether financial regulation had any effect on hedging activities. Furthermore, using TSLS analysis, we estimate the effect of hedging activities on exchange rate exposure, which is caused by tightened financial regulation in the form of corporate governance. We report the following findings. First, firms are less likely to be exposed to exchange risk with more hedging activities. Second, corporate governance has a strongly positive effect on the hedging activities. Firms use more hedging tools when they have a strong structure of shareholders protection, clear outside ownership, and a better monitoring system; but the relationship becomes weaker in times of crisis.

Original languageEnglish
Pages (from-to)S152-S173
JournalEmerging Markets Finance and Trade
Volume51
DOIs
Publication statusPublished - 2015 Jan 30

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Financial regulation
Exchange rate exposure
Hedging
Corporate governance
Financial supervision
Monitoring system
Ownership
Exchange risk
Shareholder protection

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

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abstract = "In this article, we attempt to estimate whether firm-specific exchange rate exposures affected by hedging activities can be improved through financial regulation or supervision. To analyze this, we compose three-step estimations by using a sample of KOSPI 200 firms during 1,803 trading days between 2005 and 2012. We first estimate the relationship between exchange rate exposure and hedging activities and see whether financial regulation had any effect on hedging activities. Furthermore, using TSLS analysis, we estimate the effect of hedging activities on exchange rate exposure, which is caused by tightened financial regulation in the form of corporate governance. We report the following findings. First, firms are less likely to be exposed to exchange risk with more hedging activities. Second, corporate governance has a strongly positive effect on the hedging activities. Firms use more hedging tools when they have a strong structure of shareholders protection, clear outside ownership, and a better monitoring system; but the relationship becomes weaker in times of crisis.",
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Financial regulation, exchange rate exposure, and hedging activities : Evidence from Korean firms. / Kim, Jong Hee; Kim, Joocheol.

In: Emerging Markets Finance and Trade, Vol. 51, 30.01.2015, p. S152-S173.

Research output: Contribution to journalArticle

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