By Jonathan A. Batten, Peter MacKay, P. Mackay, N. Wagner
The newest examine on measuring, coping with and pricing monetary danger. 3 huge views are thought of: monetary danger in non-financial organizations; in monetary intermediaries equivalent to banks; and at last in the context of a portfolio of securities of other credits caliber and marketability.
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954)*** Notes: This table reports ﬁrm-level probit regressions of derivatives usage on measures of the degree of competition and additional control variables. The dependent variable takes a value of 1 if the ﬁrm reports using derivatives in 1999 and 0 otherwise. All variable deﬁnitions can be found in the Appendix. Figures in parentheses denote heteroskedasticity-robust standard errors. Statistical signiﬁcance is indicated by ***, **, and * for the 1%, 5% and 10% levels respectively. 4 Competition and the probability of derivatives usage Strategic Risk Management 17 In unreported analysis we examine the impact of competition on a ﬁrm’s extent of derivatives usage, because Mello and Ruckes (2008) predict that ﬁrms hedge less if competition is more intense.
First they show that the nature of competition can affect corporate derivatives strategies, and thus support theoretical predictions by Adam, Dasgupta and Titman (2007) and Mello and Ruckes (2008). Second, the results highlight that derivatives strategies Strategic Risk Management 5 are likely to be interdependent, which implies a need for equilibrium models to better understand corporate risk management behaviors. Our results also contribute to several other strands of the literature. Most of the empirical literature on corporate risk management has examined how ﬁrm-speciﬁc factors, such as ﬁrm size, tax considerations, ﬁnancial constraints, growth options, and managerial incentives affect ﬁrms’ hedging strategies.
The dummy variable Di takes a value of one if a ﬁrm disclosed the use of FX derivatives in 1999 and zero otherwise; Fj measures the fraction of derivatives users in ﬁrm i’s industry, calculated as the market value of ﬁrms in the industry that use FX derivatives divided by the market value of all ﬁrms in the industry. When calculating F, we exclude the ﬁrm’s own hedging decision. All other variable deﬁnitions can be found in the Appendix. The second and third columns provide sub-sample analyses for more/less competitive industries (Herﬁndahl index and price-cost margin below/above median values).