The Effect of Exchange Risk Management on the Firm Performance and Credit Rating: Financial Derivatives Usage

This paper examines the economic effect of derivatives usage which occupies an important part of corporate strategies to enhance the firm performance(ROA) and the credit rating together with the global financial crisis and various firm characteristics. To the end, the samples of firms listed on the Korean stock market from 2006 to 2013 are investigated and divided it into four groups such as a KOSPI, KOSDAQ, Converted-firms to derivatives usage and nonferrous metal enterprises. Also, the impact on the enterprise value is searched taking into account of the internal characteristics such as the size of assets and liabilities, the amount of export, the income of the foreign exchange, the large-stockholder share, the foreign equity weight, business groups and the financial crisis period.
The major empirical results of this study are summarized as follows; Firstly, ROA and credit ratings becomes worse when the foreign exchange exposure is expanded, but it get better when the risk management for foreign exchange is implemented. On the other hand.
Secondly, in the case of the listed companies and the converted firms to derivatives usage, the risk management for foreign exchange gives a positive impact on ROA and the credit rating when foreign currency related net profit(loss) becomes larger. Meanwhile, it gives a positive impact on ROA or credit rating of the listed companies, KOSDAQ firms and converted firms to derivatives usage when the absolute value of the foreign exchange related net profit becomes higher.
Thirdly, the higher the large-stockholder share and foreign equity weight are, the more positive impact on ROA and credit rating for all companies. while, whether belong to the large business group are only effected a positive impact on ROA or credit rating for the listed securities companies and the converted-firms to derivatives usage.

Key Words: Exchange risk management, Firm performance, ROA, Credit Rating, Derivatives Usage