Title: The determinants of exchange rate risk management in developing countries: evidence from Indonesia

Authors: Nevi Danila; Chia-Hsing Huang

Addresses: Malangkucecwara School of Economics, Jl. Terusan Kalasan – Blimbing, Malang, Jawa Timur 65142, Indonesia ' SolBridge International School of Business, Woosong University, 151-13 Samsung 1-Dong, Dong-gu, Daejeon 34613, South Korea

Abstract: Studies on exchange-rate risk management in developing countries are still very rarely addressed. This study investigates determinants of exchange rate risk management (hedging) in Indonesian firms. Using 276 samples of listed firms in the Indonesia Stock Exchange and employing a Logit regression model, we found that only firm size is associated with a hedging in the listed companies. The findings are not consistent with the study proposed in the developed countries. It suggests that most of the large Indonesian companies are conglomerates with controlling shareholders who have the authority for hedging and making financing decisions. The finding also suggests that the hedging market in Indonesia is not yet mature. Furthermore, firms are either not familiar with the hedging instruments or may not be big enough to hire professionals to deal with the complicated and costly hedging instruments.

Keywords: derivatives; firm size; market to book asset ratio; risk management; hedging; exchange rate; dividend yield; leverage; profitability; Indonesia; developing countries.

DOI: 10.1504/AAJFA.2016.074552

Afro-Asian Journal of Finance and Accounting, 2016 Vol.6 No.1, pp.53 - 67

Accepted: 09 Nov 2015
Published online: 02 Feb 2016 *

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