TY  - JOUR
AB  - Purpose– The purpose of this paper is to investigate whether a non-monotonic relationship may exist between financial distress and foreign exchange (FX) exposure. The authors hypothesize that firms with higher FX exposures are those with the lowest levels of financial distress because the costs of hedging exceed the benefits and those with highest levels of financial distress due to the conflict of interest between shareholders and bondholders. Design/methodology/approach– The methodology allows for the possibility of a non-monotonic relation between financial distress and FX exposure for firms known to have ex-ante exposures. The approach is to include a Black-Scholes-Merton financial distress measure and standard accounting-based financial distress measures. Findings– The results support the hypothesis of a non-monotonic relationship between financial distress and exposure; companies with the lowest and highest levels of financial distress are willing to bear greater FX exposures. Originality/value– The authors examine whether a non-monotonic relationship may exist between distress and FX exposure. Intuition for this non-monotonic relationship is provided by Stulz (1996) as he describes the risk management practices of firms with low, medium, and high default probabilities.
VL  - 29
IS  - 3/4
SN  - 1935-5181
DO  - 10.1108/AJB-07-2013-0054
UR  - https://doi.org/10.1108/AJB-07-2013-0054
AU  - Akhigbe Aigbe
AU  - D. Martin Anna
AU  - J. Mauer Laurence
PY  - 2014
Y1  - 2014/01/01
TI  - Influence of financial distress on foreign exchange exposure
T2  - American Journal of Business
PB  - Emerald Group Publishing Limited
SP  - 223
EP  - 236
Y2  - 2024/04/27
ER  -