Risk Management Strategies for Corporations Operating in Developed and Emerging Markets

Risk is an integral part of the activities of any company or corporation, so in the last century, risk management has become increasingly common for corporate heads. Today, in the era of globalization, corporate heads have to face different types of risks, which are mitigated or eliminated through various risk management methods. Hedging is one of them, which is particularly deeply considered in this thesis. And in the context of increasing globalization, companies are increasingly interacting on the world stage, so the heads of companies in developed and developing economies have to think through strategies to hedge currency risks with a continuous variety of exports and imports. This is the topic that will be addressed in this research paper. This thesis may provide a new perspective on the risk management practices of companies in the Stoxx Europe 600 index. This study can be interesting and useful for current CEOs due to in-depth research and non-trivial sampling. The purpose of the work is to study the specific hedging strategy as a way to manage currency risks and their interaction with the management of companies in developed and emerging markets, as well as to understand whether hedging affects the increase in the value of the company, as one of the main tasks of the heads of companies that they always pursue. I would also like to identify whether there are any differences in the motivation of the management of companies located in developed and developing countries in hedging. The third goal is to find out whether the higher market value of the firm is recorded for hedgers using currency derivatives. . To achieve this goal, the following methods are used:: 1. Systematic review of the literature 2. Content analysis of financial statements 3. Content analysis of risk hedging publications on the example of real corporations 4. Descriptive analysis 5. Hedging firms by conducting a test for the firm's Q Tobin (the natural logarithm of Q Tobin) and conducting a logit regression model The sample consists of 416 companies, 401 of which belong to the developed economy and 15 to the developing one. The Logit regression results clearly support the theories of the financial crisis, underinvestment, and economies of scale, which shows why firms are more likely to resort to hedging strategies. So firms with small liquidity constraints should hedge less. And large corporations in advanced economies can benefit more from cost-driven hedging, and thus use more derivatives. The research and sampling took place for two different economies within the euro area: the developed and the emerging economies. It is worth noting that they differ in a number of characteristics. Thus, companies in the developing economy are aware of the importance of leverage, liquidity and the level of foreign risk to determine their propensity to hedge, while the developed economy allows corporate executives to deduce profitability and the presence of holdings with key management options. However, when analyzing the CEOs of corporations, it was revealed that developing companies in the conditions of the last covid year quickly focused and coped with the risks, proving this with the completed financial plans, which can not be said about corporations located in the developed countries of the euro zone. Also, in the course of the research conducted within the framework of this thesis, it was revealed that hedging currency risks does not affect the increase in the value of the company, as a key factor for the management of corporations.