Foreign currency exposure and hedging practices: New evidence from emerging market of ASEAN-4

Until recently, there has been little interest put in assessing the impact of foreign currency derivatives on the variation of exchange rate exposure in emerging market. Furthermore, greater economic openness coupled with relatively low intensity of hedging among ASEAN firms motivated us to investigate the relevance impact of foreign currency derivatives (FCD) to firm value under the context of small open economies of ASEAN-4. The study involves 120 non-financial listed corporations from Indonesia, Malaysia, Thailand and Singapore from January 1993 to September 2015. The level of exposure is assessed at aggregate level using Random Effects GLS specification. Several interesting findings are found in this study. First, USD remains the major source of exposure of ASEAN-4 firms. Second, there is no significant influence of the FCD usage to the level of exposure for overall period, suggesting that FCD is not suitable to mitigate long term (operational) exposure. Third, in relation to time varying exposure, there is a noticeable impact of FCD to the level of exposure of Indonesian and Malaysian firms in the middle of the Asian Financial Crisis 1997 and to a lesser extent during the Global Financial Crisis 2008. On the other hand, Singaporean and Thailand firms show mixed findings, suggesting that sample firms in these two countries might have concentrated on other forms of hedging such as operational and natural hedging, whereby the firms are considered resourceful and well diversified. � 2017 American Scientific Publishers All rights reserved.