Board attributes, hedging activities and exchange rate risk: Multi-country firm-level evidence

Abstract

This study examines whether board attributes determine firms' exchange rate risk by influencing their hedging activities. Prior literature demonstrates that strong corporate governance encourages value-enhancing hedging, but the effects of firm-level governance such as board structure on the level of firms' risk exposure have rarely been investigated. By analyzing a sample of firms in 10 emerging markets during 2011–2019, I investigate the effects of board attributes—such as size, leadership, independence, and gender diversity—on firms’ exchange rate risk. This study provides the first evidence that firms with larger boards and higher board independence face lower exchange rate risk due to more efficient hedging. Moreover, firms with gender-diverse boards become more effective in hedging and face lower exposure when board independence is higher. The findings signify that better monitoring by the board of directors over managers makes hedging more effective, resulting in lower exchange rate risk.