Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure


Numan Khan, Khurshid Ali, Alina Kiran, Riaqa Mubeen, Zeeshan Khan, Nasir Ali

Abstract


This study aims to investigate the factors that affect the derivatives usage of non-financial listed firms of Pakistan to hedge foreign exchange exposure by using data of 51 non-financial firms listed on Pakistan stock exchange from 2010-2013. The dependent variable was derivative usage which was used as dummy since no financial information was disclosed in company annual reports but the decision of usage or not. Non-parametric tests were uses which is univariate analysis to calculate the mean difference between users and non-users of derivative usage for hedging purposes. Further, logistic regression model was used to analyze the impact of financial distress costs, tax convexity, underinvestment problem, profitability, managerial holdings of the company and  foreign sales on firm’s decision to whether they use FX derivatives for hedging purposes or not. The result shows that financially distressed firms, having lower managerial holdings and lower interest coverage ration with high foreign sales are using FX derivatives in Pakistan.

Keywords


Foreign exchange exposure, Hedging, Pakistan stock exchange.

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About this article

Title

Factors that Affect the Derivatives Usage of Non-Financial Listed Firms of Pakistan to Hedge Foreign Exchange Exposure

Keywords

Foreign exchange exposure, Hedging, Pakistan stock exchange.

DOI

10.20448/journal.525/2017.1.1/525.1.9.20

Date

2016-11-25

Additional Links

Manuscript Submission

Journal

Journal of Banking and Financial Dynamics
Vol 1, No 1 (2017) Page: 9-20

Statistics

80 Views | 246 Downloads

Citations

0

Authors & Affiliations

Numan Khan
National College of Business Administration and Economics (NCBA&E)
Pakistan

Khurshid Ali
Salford University Manchester, UK
United Kingdom

Alina Kiran
Lecturer at Bahria University Islamabad
Pakistan

Riaqa Mubeen
Graduate from University of Agriculture, Faisalabad
Pakistan

Zeeshan Khan
Pakistan Institute of Development Economics (PIDE)
Pakistan

Nasir Ali
COMSATS Institute of Information Technology, Islamabad
Pakistan


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