Asymmetric information and corporate risk management by using foreign currency derivatives

Authors

Bingxuan Lin, University of Rhode Island
Chen Miao Lin, Clayton State University

Document Type

Article

Date of Original Version

3-1-2012

Abstract

We examine how information asymmetry affects a firm's incentive to hedge versus speculate by using foreign currency derivatives. We find a quadratic relation between asymmetric information and a firm's risk management activities. In particular, we find that the firms facing medium level of information asymmetry are more likely to hedge, while firms with very high and low levels of asymmetric information tend to speculate. Moreover, we find that our results hold primary for firms operating in highly competitive industries. © 2012 World Scientific Publishing Co. and Center for Pacific Basin Business, Economics and Finance Research.

Publication Title, e.g., Journal

Review of Pacific Basin Financial Markets and Policies

Volume

15

Issue

1

Citation/Publisher Attribution

Lin, Bingxuan, and Chen Miao Lin. "Asymmetric information and corporate risk management by using foreign currency derivatives." Review of Pacific Basin Financial Markets and Policies 15, 1 (2012). doi: 10.1142/S0219091511500068.