Corporate risk management in Hong Kong and Singapore

Abstract

Purpose

To better understand corporate risk management practice in Hong Kong and Singapore. To explore popular perception that use of derivatives in Hong Kong and Singapore lags that in the US. To explore possible speculative use of derivatives in these Asian countries.

Design/methodology/approach

A survey of non‐financial corporations using the format of the 1998 Wharton study. I investigated the extent to which derivatives are used, how they are used, and methods for their oversight.

Findings

Derivatives are used more extensively in Hong Kong and Singapore than in the US. They are particularly popular for managing foreign exchange risk. Their use is more speculative than is common in the US; that is, market predictions play a significant role in the size and timing of hedge trades and derivatives are often used for active management of exposures. A lack of controls and management oversight (such as derivatives policies, regular valuations) is apparent, despite the extent of derivatives use.

Research limitations/implications

Potential bias may have arisen due to the method used for recruiting survey respondents. In this study post‐graduate students contacted and interviewed company staff, often based on their personal contacts. In contrast, the Wharton surveys have been mailed to potential respondents. Students may have been more likely to select companies that traded derivatives. The sample size (131 firms) is smaller than that of the Wharton studies, but probably sufficient to establish common trends.

Practical implications

Need to address poor oversight of derivatives trading in order to prevent further disasters. Need to scrutinise the speculative use of derivatives to ensure that it is value‐adding for firm owners.

Originality/value

To highlight the extent of speculative use of derivatives in Hong Kong and Singapore. To encourage further scrutiny and controls over the use of derivatives by directors of and investors in non‐financial corporations in these countries.

Citation

Sheedy, E. (2006), "Corporate risk management in Hong Kong and Singapore", Managerial Finance, Vol. 32 No. 2, pp. 89-100. https://doi.org/10.1108/0307435061064188