Determinants of exchange rate risk hedging with derivatives: evidence for spanish market

The present paper analyses the reasons why publicly traded Spanish firms use derivatives to hedge against exchange-rate risk. The research focuses on the reasons that can be justified based on the theory of optimal hedging. The results ha,e been obtained using multivariate binary regression models and they suggest that companies use derivatives because of factors related with economies or scale, asymmetric information and underinvestment problems, and bankruptcy costs. With regarding to the hedging volume, the main variable that determines the volume of hedging is the level of exchange exposition. Finally in the analysis of foreign currency debt, we found that companies use it as a complementary hedging instrument.