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Korean Journal of Financial Studies 2013;42(5):865-899.
Published online December 31, 2013.
Derivatives Hedging, Earnings Management, and Foreign Exchange Exposure
Taek Ho Kwon, Jong Won Park
파생상품사용과 이익관리가 한국기업의 환노출관리성과에 미치는 영향
권택호, 박종원
We test the effects of firm`s derivatives hedging and earnings management on foreign exchange rate (FX) exposure using the data of KOSPI firms from 2005 to 2010. This study is distinguished from previous studies in two ways: we measure the expected FX exposure (an ex-ante exposure from firm`s operation activity) and the observed FX exposure (an expost exposure from the stock market) separately, and also consider both derivatives hedging and earnings management to analyze the effectiveness of a firm`s activities for FX exposure management. The main empirical results are as follows: First, derivatives hedging contributes to reducing the firm`s exposure while earnings management does not. Second, if we classify total sample into the positive expected FX exposure sample and the negative expected FX exposure sample, the positive effect of derivatives hedging is found in the firms with positive expected exposure, while earnings management using discretionary accruals is a useful tool to the firms which have negative expected exposure. This implies that managers select the derivatives hedging and the earnings management asymmetrically according to their expected FX exposure. Finally, using many types of derivatives is negatively related with the hedging effects during the period before the 2008 financial crisis. This result suggests that Korean firms used too many kinds of derivatives than they needed in this period.
Key Words: 관찰환노출,예측환노출,이익관리,파생상품,환노출관리성과,Derivatives,Earnings Management,Expected FX Exposure,Hedging Effects,Observed FX Exposure
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