Determinants of Corporate Hedging Practices in Malaysia

Abstract

This paper examines the impact of the firm specific factors on the use of derivative instruments for Malaysia firms. We find that there is a significant relationship between the use of derivatives and foreign sales, liquidity, firm growth, managerial ownership and size. Our findings suggest that only a few listed Malaysian firms have appropriate understanding of the derivatives instruments to mitigate risks in international business environment. Most Malaysian managers seem to be risk averse and do not understand the upside of taking position in the derivatives markets.

Penggunaan Hedging oleh Perusahaan Telekomunikasi yang Tercatat Pada Bursa Efek Indonesia

“…Hedging meingkatkan value creation perusahaan (Clark dan Mefteh, 2010). Adanya hubungan yang kuat antara hedging derivative dengan sales, likuiditas, pertumbuhan option, growth options, managerial ownership dan besarnya perusahaan di Malaysia (Ameer, 2010). Penggunaan produk derivatif berpengaruh signifikan positif terhadap nilai keuangan perusahaan (Samitas et al 2011).…”

The Impact of Hedging on Firm Value of Public Non-Bank State-Owned Enterprises

“…The practice of hedging outside the developed countries is different due to the unique characteristics of a firm (Ameer, 2010). Several studies have investigated market risk in firms in the Asia Pacific region.…”

“…For example, He, Ng, & Wu (1998) examined foreign exchange exposure on Japanese multinational firms; Chalmers & Godfrey (2000), Chalmers (2001), and Nguyen & Faff (2003), investigated the impact of derivatives in firms in Australia, and Hu & Wang (2005) examined the use of derivatives among firms in Hong Kong. Ameer (2010) extended knowledge of the factors that affected the demand for foreign exchange and interest derivatives in developing countries, especially in Malaysia. There was a strong relationship between the use of derivatives and overseas sales of firms, liquidity, the growth of options, and size and managerial ownership in Malaysian firms.…”

“…Likewise, the research developed by Ameer (2010) which stated that the company had the greatest risk to exchange rates when having a large exposure to export and import activities. It was, therefore, reasonable that previous studies had focused primarily on the dominance of firm foreign exchange risk, in addition to risks to interest rates as well as market risks such as commodity risk, and other nonfinancial risks such as information process, technology, strategy and leadership risks that had become the center of attention.…”

Indirect Financial Distress Costs: Evidence from Trading and Services Sector

“…Several authors have used other variables as a proxy for indirect financial distress costs. The examples are [17,26] those who use working-capital-to-total-assets ratio, long-term debt ratio, interest coverage ratio and [27] liquidity (ratio of quick assets to total current assets) as the proxy for the indirect financial distress costs. The financial distress costs data that is unique and specific to Malaysia's legal and listing requirement is very important because the existence and significance of the financial distress costs depend on the market setting [1].…”