Foreign exchange rate exposure, hedging activities and corporate governance: evidence from Hong Kong market

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Yin, Ziyuan (2018) Foreign exchange rate exposure, hedging activities and corporate governance: evidence from Hong Kong market. [Dissertation (University of Nottingham only)]

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Abstract

In this research, we aim to estimate whether firm-specific exchange rate exposures affected by hedging activities can be improved through corporate governance or strict monitoring. To analyse this, we conduct three-step estimations (Kim and Kim, 2015) by using a sample of Hang Seng Index constitutent firms from 2008 to 2015. First, we investigate the correlation between exchange rate exposure and hedging activities and find out whether corporate governance had any effect on hedging activities. Furthermore, we estimate the effect of hedging activities on exchange rate exposure, caused by tight monitoring in the form of corporate governance.

Besides, we compare the findings obtained in the strongly governed firms and weakly governed firms and find out whether the same tendency exists in the firms with different intensities of corporate monitoring and we report the following findings. Firstly, firms are less likely to be exposed to exchange risk when there are more hedging activities and this trend is stronger in weakly governed firms. Secondly, corporate governance has a negative impact on the hedging activities in all sample sets. Firms use hedging more conservatively when they have a strong structure in terms of board monitoring, compensation system, and a better control of CEO’s power; and ultimately, the connection becomes stronger in times of crisis.

These results are generalized for two subsamples, firms with the mainland China background and Non-financial companies, while the magnitude of the significance becomes smaller during the financial crisis. Overall, the results serve as the comprehensive evidence to show the impact of hedging activities on exchange rate exposure and the impact of firm-level corporate governance on firms' use of derivatives.

Item Type: Dissertation (University of Nottingham only)
Depositing User: Bujang, Rosini
Date Deposited: 06 Sep 2018 07:49
Last Modified: 07 May 2020 16:46
URI: https://eprints.nottingham.ac.uk/id/eprint/53750

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